Preamble

The House met at hall past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

PLYMOUTH CITY COUNCIL BILL [Lords] (By Order)

Order for Second Reading read.

To be read a Second time upon Thursday 10 July.

BLYTH HARBOUR BILL [Lords] (By Order)

Read a Second time, and committed.

Royal Assent

Mr. Speaker: I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified Her Royal Assent to the following Acts:

1. Road Traffic Regulation (Parking) Act 1986.
2. Children and Young Persons (Amendment) Act 1986.
3. Consumer Safety (Amendment) Act 1986.
4. Forestry Act 1986.
5. Airports Act 1986.
6. Drug Trafficking Offences Act 1986.
7. Disabled Persons (Services, Consultation and Representation) Act 1986.
8. Protection of Children (Tobacco) Act 1986.
9. Protection of Military Remains Act 1986.
10. Harrogate Borough Council Act 1986.
11. South Yorkshire Passenger Transport Act 1986.
12. Clifton Suspension Bridge Act 1986.

Oral Answers to Questions — EDUCATION AND SCIENCE

School Books

Mr. Hardy: asked the Secretary of State for Education and Science what is his estimate of the amount which will be spent in the current financial year upon books in schools; how much this represents per pupil; and if he will take action to assist local authorities to increase this provision.

The Minister of State, Department of Education and Science (Mr. Chris Patten): Local education authorities and schools decide how much is spent on books. The plans which we published in January were consistent with an expenditure on books of £70 million or £10 per pupil. On 10 June my right hon. Friend the Secretary of State announced a further £20 million for books and equipment for GCSE courses.

Mr. Hardy: Is the Minister aware that the total shortfall now amounts to more than £5 million a year, that most schools lack sufficient hooks and that books in use are often out of date? Is he further aware that the older geography books show nothing of the industrial transformation and devastation that has completely altered many local economies, and that pupils are not only hurt by the Government's lack of vision and provision but are demonstrably ill-informed?

Mr. Patten: I do not accept what the hon. Gentleman has said. [HON. MEMBERS: "HMI report".] As Opposition Members are shouting about the HMI report, I should remind them that it noted that the inadequate identification by teachers of pupils' educational needs and poor management of resources were more telling factors than the level of capitation.

Mr. Dorrell: Does my hon. Friend agree that recent developments in school management in Cambridgeshire, which offer greater discretion to school heads and governors in the use of resources, represent an interesting way forward? Could not other local education authorities usefully allow their schools more discretion and give heads more ability to decide the priorities that should be attached to the provision of textbooks and other school resources?

Mr. Patten: I entirely agree with my hon. Friend. I am only sorry that he is not serving on the Education Bill Committee. But, as has been said, it is never too late. If he was serving on it, he would know that clause 25 helps to promote those very activities.

Mr. Freud: Is the Minister aware that yesterday the Minister for the Arts gave a commitment that the library service would remain free? Does the hon. Gentleman accept that it would be very damaging to the public service and to education if parents had to make an input into the provision of books? Will he give an undertaking that that will not occur and that books for education will remain his Department's responsibility?

Mr. Patten: There is no such obligation on parents. I think that there is a question on the library service later on the Order Paper.

Mr. Adley: Does the Department have any policy of ensuring, as far as possible, that school books are published by British publishers? Will my hon. Friend do what he can to ensure that pirated editions of British publishers' books are not allowed into our schools?

Mr. Patten: I will certainly look into what my hon. Friend has said.

Mr. Radice: Does the Minister accept that the relevant facts are that there has been a reduction in book spending per pupil in primary and secondary schools in each of the past three years? That information was provided by the Parliamentary Under-Secretary of State to my hon. Friend the Member for Denton and Reddish (Mr. Bennett). In May HMI warned the Secretary of State about the inadequacy of books provision. In case the Minister has forgotten, that appeared in paragraph 12 of the report. Why does he not simply tell the House this afternoon that the Government will provide extra resources for books in 1987–88?

Mr. Patten: As the hon. Gentleman will know, most schools are given a capitation allowance which covers books and equipment, and they make the choice between spending on books and equipment. The spending per pupil on books and equipment fell by 6 per cent. in primary schools and by 8 per cent. in secondary schools in real terms between 1975 and 1979. Under this Government, spending on books and equipment has increased by 8 per cent. for primary schools and by 5 per cent. for secondary schools. No decision has been taken on local authority spending for 1987–88, but I am sure that the report by HMI will be taken into account.

Polytechnic Courses

Mr. Watts: asked the Secretary of State for Education and Science what is the number of students currently attending polytechnic courses; and how this compares with 1979.

The Secretary of State for Education and Science (Mr. Kenneth Baker): In 1979 there were 131,000 full-time equivalent students at polytechnics. This had risen by 1984 to just under 171,000: an increase of just over 30 per cent.

Mr. Watts: I thank my right hon. Friend for that most encouraging reply. Does he expect the growth in numbers of technically and technologically skilled students and graduates from polytechnics to continue? Will he take the opportunity to refute the wild allegations that a massive cut in pupil numbers is in prospect?

Mr. Baker: On my hon. Friend's latter point, the Government do not want to see any overall reduction in intakes to polytechnics.
On the question of technology students, I pay tribute to the excellent work of polytechnics in training for professions and careers in technology. For example, at Coventry polytechnic, only one student out of 29 who graduated from the industrial design degree course last summer was still looking for a job in December, while all those who graduated from the combined engineering and languages course obtained jobs.

Mr. Flannery: Is it not a fact that the draconian cuts in universities have meant that many highly qualified young people who would otherwise have attended university have had to seek entrance to polytechnics?

Mr. Baker: Not for the first time, the hon. Gentleman has got it wrong. Under this Government there has been an unprecedented increase in the number of full-time students entering univerisities and polytechnics. As I said in the House about a fortnight ago, the total increase is 80,000 full-time students, and nearly 140,000 if one includes part-time students. That is a record of which we can be proud when it is compared with the reduction in the number of students during the period of the Labour Government.

Mr. Michael Morris: If my right hon. Friend wishes to increase the numbers still further, will he examine closely the submission to his Department of an application for polytechnic status by Nene college in Northampton, which, by any yardstick, has achieved the academic requirements for polytechnic status?

Mr. Baker: I shall consider my hon. Friend's request. I hope to visit Northampton and Northamptonshire in the not-too-distant future.

Mr. Fatchett: If the Secretary of State wanted to give a complete picture of what has happened in polytechnics during the past seven years, would he not draw the attention of the House to the fact that the amount of money spent per student has decreased by 25 per cent.? Is that not the real figure that shows the Government's record on polytechnics?

Mr. Baker: The hon. Gentleman makes the mistake of thinking that it requires only money to buy good education. The polytechnics have demonstrated that there is considerable scope for greater efficiency, not least by filling previously empty places. Nevertheless. I applaud their success in increasing the student-staff ratio from 8·4:1 in 1979 to 11·5:1 in 1984.

Mr. Douglas Hogg: Is my right hon. Friend aware that there is considerable concern about the funding of polytechnic evening-only degree and postgraduate courses? Will he give personal and careful consideration to the representations that have been made by Professor Burlin, which are set out in a letter dated 3 June 1986, addressed to my hon. Friend the Under-Secretary of State for Education and Science, who has responsibility for higher education?

Mr. Baker: Yes, I shall do that. I pay tribute to the family interest of my hon. Friend, whose great, great grandfather started one of the greatest polytechnics in Britain.

Mr. Andrew F. Bennett: Before the Secretary of State becomes too smug and rewrites history, does he recall that it was the Conservative Government who tried to cut the number of students in universities? It was fortunate that local authority control of polytechnics took up the cut in student numbers. Can he tell us what will happen for the following academic year? Will he allow the polytechnics sufficient resources so that they do not have to cut places, or will he insist that there will be a cut of 9,000 places in 1987–88?

Mr. Baker: I am not trying to rewrite history. My hon. Friend's great, great grandfather founded one of our first polytechnics. The talk of 10,000 places being cut that is being bandied around is conjecture based upon hypothesis inflamed by exaggerated anxiety. I cannot announce an


expenditure figure until local authority current expenditure is agreed. I hope to be able to give a figure to the National Advisory Board by the end of August. I assure the House that the Government do not want to see an overall reduction in the intake of polytechnics.

Holidays (School Premises)

Mr. David Atkinson: asked the Secretary of State for Education and Science if he will make a statement about his policy on the use of educational establishments during school holidays.

The Parliamentary Under-Secretary of State for Education and Science (Mr. Bob Dunn): The use of school premises out of hours is a matter for local decision by authorities and governors. The Government encourage their fuller use by the community where this is practicable and justified.

Mr. Atkinson: Is my hon. Friend satisfied that the commercial potential of school premises and grounds, when they are not being used by pupils, is being exploited fully by education authorities to increase their revenue? Is he aware of the growing number of sports and activity holidays and of the thriving English language school industry, which often need venues of this kind?

Mr. Dunn: Local authorities are empowered to make an economic charge for the services that are provided. The evidence available to me of sports-centred holidays and school facilities is that they are developments that are worth watching. I shall continue to watch how this trend develops and how it can best be promoted.

Mr. Carter-Jones: Does the Minister not yet realise that the concepts enunciated in the village colleges in Cambridge well before the second world war are worthy of consideration now? Does he not recognise their importance to the community, and will he encourage them?

Mr. Dunn: I am not entirely aware of the pre-war development to which the hon. Gentleman refers. The concept of the use by the community of facilities as currently practised in Cambridgeshire — I visited Cambridgeshire a short while ago to see at first hand what it was doing — is to be encouraged and should be undertaken by other local authorities. I trust that in time the Cambridgeshire example will be followed.

Mr. Pawsey: I thank my hon. Friend for his generally helpful reply. Bearing in mind the importance of dual use to many of our communities, will he consider issuing a circular to local authorities so that this activity might be promoted?

Mr Dunn: The promotion of this activity is of great interest to the Government. A circular is one of a number of vehicles available to us. I shall bear my hon. Friend's comments in mind.

Mr. Sheerman: Will the Minister use this occasion to denounce the scheme, published in The Guardian this morning and emanating from the Department of the Environment, that local education authorities will be forced to let out schools to the highest bidder in the holidays, at weekends and in the evenings, and that parents of schoolchildren will be charged at the market rate for extra curricular activity, such as music lessons? Will he denounce this plan immediately?

Mr. Dunn: Before commenting, I should like to see the article to which the hon. Gentleman referred. I am grateful to the hon. Gentleman for handing me a copy. I shall read it in the course of the next few questions.
The purpose of this question is to establish the Government's attitude towards the use of school facilities in the holidays and at other times. I have already said that we welcome the maximisation of the use of facilities at all times by local authorities.

Mathematics and Science

Mr. Alan Howarth: asked the Secretary of State for Education and Science what measures he intends to take to improve recruitment of teachers of mathematics and science.

Mr. Kenneth Baker: I am working on a range of measures with the education service and with industry. I will publish a consultation document tomorrow.

Mr. Howarth: Does my right hon. Friend agree that the most important single cause of our present shortage of mathematics and science teachers lies in the negative attitude to salary differentiation on the part of teachers' union representatives on the Burnham committee over many years? That is the principal reason why our school leaders are now, on average, two years behind their German and Japanese counterparts in mathematical attainment, with all the handicaps that that means for them personally and for our economy. Is my right hon. Friend aware that his determination to grasp the problem and build on the initiatives taken by his predecessor will be greatly welcomed?

Mr. Baker: I shall certainly be building on the initiatives taken by my predecessor. The shortage of mathematics, physics and technology teachers is a grave crisis for our country. It has been arising for a long time. The consultation document that I shall be publishing tomorrow puts forward eight different proposals. I hope that when it has been considered by the education world and by industry there will be even more proposals. One of them is the point that my hon. Friend has addressed, the question of differentials, and whether, as there is a shortage, that should be recognised in the pay. This matter must be addressed by ACAS. I take note of the point made by my hon. Friend in recognising that some differential should be paid to encourage more people to teach in these subjects.

Mr. Dalyell: Is Sir John Mason of the Royal Society right in saying that only 40 or 50 teachers of physics will go into teaching next year? Have the Government, in their preparation of the paper, clone any projections for 1992, when a lump of physics and mathematics teachers are due to retire and the number of schools requiring mathematics and physics teachers will begin to increase rather dramatically?

Mr. Baker: The hon. Gentleman will see that in the consultation document we set out the number of applications by graduates who want to take courses in teaching physics and maths. I agree that we must find ways of attracting more people into teaching physics and maths. Various ideas have been put forward to involve industry and to try to encourage people who have a mathemathical and tehnological background who want to retire early to come back and possibly teach in our schools. Surrey


county council has approached the chambers of commerce and the rotary clubs to see whether they can help in that regard. I also want to involve people who retire from the services early who now have a strong technological background. I have met former officers and noncommissioned officers who are teachers in computer studies. We must explore all methods to attract more people to that area. We must also persuade children, even at the primary school level, to take an interest in these subjects so that there is a steady flow through the educational stream.

Mr. Gerald Bowden: Has my right hon. Friend heard of the scheme known as SMILE — the secondary mathematics individual learning scheme that is used in inner London schools? Has he seen a recent report in the Daily Telegraph that children taking the CSE examination were asked to estimate the cost of providing food, housing and welfare for the world and to compare that with NATO and Warsaw pact military expenditure? Is that the sort of question that should be asked of children? Is it any surprise that mathematics is at such an appallingly low standard in inner London schools? Is it any surprise that no teacher of calibre can be recruited to those schools?

Mr. Baker: I have seen the examination paper in question, and I deplore the fact that an examination paper appeared in that form. —[HON. MEMBERS: "Why?"] Because it has nothing to do with mathematics; it is all to do with politics. I deplore the fact that politics has been dragged in in that way. I have written to the chairman of the examinations board asking him to look into the matter.

Mr. Freud: We are pleased to hear that the Secretary of State acknowledges that the reasons for the shortage of science-skilled teachers can be found long before the teacher training college stage. Does the right hon. Gentleman accept that paying one set of teachers more than another will create divisions in the teacher force? Will he bear in mind the failure of the £1,000 bounty for teachers who were to go into mathematics and science?

Mr. Baker: The hon. Gentleman was a little quick in calling it a failure. It is not £1,000, but £1,200, so he is only 20 per cent. out. The bursary to students entering postgraduate teacher training courses from this September is £1,200. I hope that more students will be persuaded to take it up. Pay differentials do operate, recognising merit, quality and responsibility. That may well be a way forward towards recognising the shortages that exist.

Mr. Radice: It is common ground that there is a major crisis of teacher supply in mathematics, physics and technology. I welcome the consultative document which the Secretary of State is to publish tomorrow. In view of the crisis and the need to act swiftly—which I think the right hon. Gentleman acknowledges — should he not now call on industry, which is always rightly asking our schools to raise their standards, to organise an immediate programme of secondment of qualified people to our schools?

Mr. Baker: The hon. Gentleman will find that there are various proposals in the consultative document which deeply involve industry. For example, GEC will find work for teachers in its factories for four or five weeks in the

year. That is a step forward. The hon. Gentleman speaks of a crisis, but I hope he will recognise that it is not a crisis of the Government's making.

Mr. Sheerman: It is always someone else's fault.

Mr. Baker: In 1977 the Labour Government started a series of incentives, some of which have not worked. Over the past 30 years previous Governments have tried to solve the problem. For example, in the late 1940s some people were let off national service if they decided to teach mathematics and physics. This long-term problem requires urgent action. The document contains many proposals, and I hope that the country will consider them seriously.

Crime Prevention

Mr. Brandon-Bravo: asked the Secretary of State for Education and Science to what extent the Education (Grants and Awards) Acts have been used to assist in specific programmes to help education for crime prevention.

Mr. Chris Patten: In the current year education support grants are supporting expenditure by local education authorities of up to £2 million on preventing the misuse of drugs. In 1987–88 they will, in addition, be supporting expenditure of up to £1 million on schemes to promote social responsibility among young people with a view to reducing juvenile crime.

Mr. Brandon-Bravo: I welcome expenditure in this area of education. Are any of these grants used to discourage vandalism? Are grants available to encourage parental responsibility in respect of this activity? My hon. Friend may be aware—if not, I will send him the details—of a great tragedy in my consitituency where young persons are causing great distress and damage. I believe that education has a role to play in improving the position.

Mr. Patten: I assure my hon. Friend that what we have in mind will include schemes designed to reduce vandalism as well as projects to involve parents. I draw my hon. Friend's attention to the guide on best practice in securing education buildings against vandalism, which we have already published, and a study of the subject, which we initiated. We hope that the Education Bill, which strengthens the links between parents and schools, will help in that regard as well.

Mr. Greenway: Will my hon. Friend consider using the Education (Grants and Awards) Acts to stimulate team games coaching and teaching in all schools? That will give our children a chance to learn cricket, rugger, soccer and other team games which are currently denied them by many Labour authorities. Does my hon. Friend realise that Michael Gatting, who is captaining England at cricket with such distinction, was a product of a London school, and that we shall never see the like of him again if the Labour-controlled London authorities are allowed to continue as they are?

Mr. Patten: Like my hon. Friend, I deplore some of the attitudes of Labour-controlled local education authorities on team games. Like my hon. Friend, I think that there is a strong case for encouraging more coaching of cricket, especially in view of events elsewhere today.

Population Growth Areas

Mr. Adley: asked the Secretary of State for Education and Science what steps he is taking to ensure that adequate education facilities are available in areas of population growth; and if he will make a statement.

Mr. Dunn: It is for the local education authority to ensure that the schools available in its area are sufficient in number, character and equipment.

Mr. Adley: I thank my hon. Friend for that reply. Is he aware that there is a warm welcome in my constituency for his recent decision on the voluntary aided school in Verwood? I am doing nothing less than my duty in thanking him and my right hon. Friend the Secretary of State for the speed with which they acted. However, is he aware that in east Dorset, an area of major population growth, there remain many problems about bussing and so on, which cause distress to many parents? Could he have a word with the Department of the Environment to try to ensure that, when major housing schemes are proposed, for example, under structure plan amendments, there is some input from his Department to see that schools are provided before the huge housing developments take place?

Mr. Dunn: I am grateful to my hon. Friend for his kind words about the recent decision, published on 10 June, to establish a new voluntary aided middle school in Verwood. With regard to my hon. Friend's question about transport, I shall ensure that the comments he has made are drawn to the attention of the appropriate Department.

Mr. Campbell-Savours: To what extent is the Department of Education and Science being consulted by the Department of Employment over the review of skill-centres that is currently going on, which arises in part from changes in population? In the event that the Government were to proceed with the stupid decision, or were to proceed down the route of taking a stupid decision to close the Maryport skillcentre in my constituency, may I have an assurance that the Department of Education and Science will object most vigorously, because it will affect education and training provision in west Cumbria?

Mr. Dunn: This question is about adequate education facilities in the context of school places. However, I shall undertake to ensure that the comments the hon. Gentleman has just made are drawn to the attention of the Paymaster General.

Mr. Conway: My hon. Friend's reply to my hon. Friend the Member for Christchurch (Mr. Adley) was no doubt right, in that it is the responsibility of local education authorities to establish provision, but does my hon. Friend accept that where Governments accelerate population growth, such as in the county of Shropshire, with the establishment and growth of a new town, it is incumbent upon them to ensure that sufficient resources go along with that nationally inspired growth to cope with educational demand?

Mr. Dunn: In deciding upon the distribution of financial resources available to us, we shall continue to give priority to work necessary to meet increased pupil numbers in areas of population growth. That is a guarantee that I can give to my hon. Friend.

Mr. Meadowcroft: Is the Minister aware that in parts of a large city such as Leeds there is population growth but

the overall trend is of falling rolls? Will the Minister say whether he favours a single solution for such cities, which in the case of Leeds would involve the reorganisation of all the schools, including one single tertiary college, which has been proposed by the local education authority?

Mr. Dunn: The hon. Gentleman is very seductive in trying to make me pass comment on proposals which have not yet come to the Department for deliberation and adjudication. I can assure him that any comments that he or any other Member from the city of Leeds cares to make about any proposals which may come my way will be borne in mind.

Mr. Nicholas Winterton: A number of hon. Members are concerned about the amount of sports field provision within education and are deeply anxious that many sports fields are being sold off. Bearing in mind the shortage of sports field facilities in many parts of the country, does my hon. Friend not feel that it would he sensible to look at this seriously so that, before land currently used to provide sporting facilities is sold off for other purposes, the overall physical recreation requirements of all areas are properly investigated?

Mr. Dunn: School playing fields are protected by the appropriate regulations, have just written to my hon. Friend on that very subject.

Royal Greenwich Observatory

Mr. Tony Lloyd: asked the Secretary of State for Education and Science what recent representations he has received about the Science and Engineering Research Council decision to transfer the Royal Greenwich Observatory to Cambridge.

The Parliamentary Under-Secretary of State for Education and Science (Mr. George Walden): Since the council meeting on 18 June my right hon. Friend the Secretary of State and I have received 22 letters commenting on the decision to transfer the RGO to Cambridge.

Mr. Lloyd: Has the Minister seen the editorial in the latest edition of Nature, which surmises that the decision to refuse to transfer the Royal Greenwich Observatory to Manchester seemed to be justified by a desire to please the staff at the RGO, who felt that living north of the River Trent would be uncomfortable and a little bit like living in a foreign country? Does the Minister accept that nobody — not only those in the north of England -believes that the decision was made on technical grounds, but was simply to please the Oxbridge mafiosi? Will the hon. Gentleman now agree to publish the reports leading up to the decision so that at least he can absolve himself of the charge that he is pandering to that mafiosi?

Mr. Walden: Such decisions on scientific grounds are taken by the research councils that are appointed by my right hon. Friend the Secretary of State to make precisely that sort of decision.

Mr. Charles Wardle: Is my hon. Friend aware that both the Royal Society and the Royal Astronomical Society have advised the SERC to leave the Royal Greenwich Observatory at Herstmonceux? Is he further aware that the chairman of the SERC said in March that the cost of the move would be £3·5 million, and now he is saying that


it will cost £6 million? Will my hon. Friend examine the proposal carefully and critically, and particularly the financial reasoning that underlies it?

Mr. Walden: I can only repeat to my hon. Friend what I have just said in reply, to the first question. Those decisions are taken on scientific grounds, by people who are appointed by my right hon. Friend the Secretary of State to take them. However, I should like to add that I am well aware of the uncertainty and, perhaps, the disruption that will be caused to the lives of some of my hon. Friend's constituents. As he knows, the SERC is anxious to do whatever it can to help in that regard.

Mr. Faulds: Is the hon. Gentleman not aware that there is widespread and near total opposition—[Interruption.] I will get on when people shut up and let people be heard—

Mr. Speaker: Order. I can hear the hon. Gentleman.

Mr. Faulds: For the benefit of these loons, I will repeat the question. Is the hon. Gentleman unaware that there is widespread and near total opposition to the move from Herstmonceux by those in the astronomical world who actually know something about this problem, unlike the majority of the members of the SERC? Will the hon. Gentleman get his right hon. Friend the Secretary of State to review this decision before the damaging implications become too obvious?

Mr. Walden: I am not aware of near total opposition to the decision. What I am aware of, as in any such decision, is very healthy and natural public discussion and public dissent.

Mr. Silvester: Will my hon. Friend make it clear, because it is not altogether clear from his answers, whether he is simply taking the decision of the SERC at face value, or reviewing it? If he is reviewing it, will he make sure that before the review he publishes the facts on which the council's decision and statement are based, particularly in respect of the Herschel development?

Mr. Walden: The position is as follows. The council is required to seek my right hon. Friend's approval to the capital expenditure at Cambridge, and through him, the Treasury, for the retention of the receipts from the sale of the Herstmonceux estate. Apart from those financial approvals, there is a long-standing practice over many years, observed by Governments of both complexions, not to overturn a decision by a research council made on scientific grounds.

Dr. Bray: Is the Minister aware that the SERC in fact said that Manchester as well as Cambridge
would be very satisfactory from scientific, technological and administrative viewpoints"?
Is he further aware that the decision to send the observatory to Cambridge greatly increases the claims that Manchester will have for the next research institute, which will perhaps create more employment in Greater Manchester than in La Palma or Hawaii?

Mr. Walden: I note the hon. Gentleman's advance lobbying.

Mr. Gow: Is my hon. Friend aware that among the 22 letters which he has received about the recommendations of the research council there is a particularly powerful one from the hon. Member for Eastbourne? Following the

answer that he has just given to my hon. Friend the Member for Manchester, Withington (Mr. Silvester) will my hon. Friend make it clear that the Secretary of State does not have in mind even the possibility that the Government will reject the recommendations of the research council?

Mr. Walden: Among the other letters, I am aware, of course, of the powerful points that have been put by my hon. Friend. I can only repeat that there is a long-standing practice, observed by all Governments, not to question decisions by research councils which are taken on scientific grounds.

Polytechnics

Mr. Brown: asked the Secretary of State for Education and Science what representations he has received in the past month from directors of polytechnics about the National Advisory Body's planning exercise for 1987–88.

Mr. Kilroy-Silk: asked the Secretary of State for Education and Science what representations he has received in the past month from directors of polytechnics about the National Advisory Body's planning exercise for 1987–88.
I have received one letter. During the past month I have also visited five polytechnics and my right hon. Friend has also visited one. The National Advisory Body's planning exercise was among the subjects discussed on each occasion.

Mr. Brown: When the hon. Gentleman responds to the representations made to him by the directors of the polytechnics in the northern region — Teesside, Middlesbrough, and Newcastle—will he give due weight to the representations that have been made by major private sector employers in the northern region, including Alcan and Swan Hunters, which have protested most vigorously to the cuts that he proposes?

Mr. Walden: The hon. Gentleman's question is based on a total misconception. I propose no cuts and the Government propose no cuts. As it happens, I have visited the polytechnics to which the hon. Gentleman refers and I have therefore had a recent opportunity to leave people on the spot in no doubt about the inaccurate and misleading information which has been put about and which has been encouraged by the hon. Gentleman.

Mrs. Currie: I congratulate my hon. Friend on the excellent results which were announced earlier this afternoon of the increase under the Government in the numbers of polytechnic students. Does that not show the Conservative Government's considerable support and commitment to the growth of this particular sector of higher education, which now rivals the universities in the quality of the work that it does?

Mr. Walden: I am glad that my hon. Friend made that intervention, because it will help to counter some of the nonsense that is put about by the Opposition. I am never surprised when the Opposition flog a dead horse, but "Poly Cuts" expired before it even got to the starting line.

School Reorganisation Plans

Mr. Stern: asked the Secretary of State for Education and Science if he has any plans to speed up the work of his Department in considering school reorganisation plans submitted to him.

Mr. Baker: I have appointed Mr. J. A. M. Mitchell to undertake a scrutiny of the Department's procedures on school closures, with the purpose of speeding those procedures up.

Mr. Stern: May I assure my right hon. Friend that that is a most welcome answer especially in a politically volatile area such as the county of Avon, where the disadvantage of delays in the programme of school reorganisation means that the beneficiary is often the successor administration?

Mr. Baker: I agree with my hon. Friend. There have been quite unacceptable delays in coming to decisions. There is a proposal before me from the Avon local education authority, and I shall try to deal with it as expeditiously as I can.

University of Edinburgh

Mr. Dalyell: asked the Secretary of State for Education and Science what representations he has had from the vice-chancellor and principal of the University of Edinburgh on the issue of research funds.

Mr. Walden: My right hon. Friend has received a letter from Dr. Burnett describing some of the implications for Edinburgh university of the University Grants Committee's grant allocations for 1986–87 and expressing concern about future funding prospects.

Mr. Dalyell: May I ask two questions, of which I have given the Minister's office notice? On what proportion of the total grant did the UGC exercise research selectivity? Was it 15 per cent., 30 per cent. or 100 per cent.? On what proportion of the total grant was the new common funding base applied?

Mr. Walden: The proportions of the resources allocated notionally for teaching and research purposes were determined by the UGC sub-committees and varied between subjects. I understand that, overall, about two thirds of the resources were allocated on a common basis to teaching purposes and that one third was allocated to research purposes. Obviously the effects in each university will be different according to the different mix of subjects.

School Reorganisation Plans

Mr. Teddy Taylor: asked the Secretary of State for Education and Science how many proposals for major reorganisation of secondary education he has received from local authorities since 1979; and how many he has approved.

Mr. Dunn: Detailed records of proposals for major reorganisation of secondary education are available only in respect of those published since August 1980, when sections 12 to 15 of the Education Act 1980 came into force. Of the 73 such proposals received since that date, 45 have been approved, nine are undecided, and 19 were rejected.

Mr. Taylor: Is my hon. Friend aware from his highly successful visit to Southend last week of the damaging

educational uncertainty created by county councils which put forward major reorganisation plans, in this case twice within a period of three years, to take away the sixth forms from comprehensives and to abolish two excellent grammar schools? Will he urge local councils not to produce a large number of secondary school reorganisations within a short time, thereby creating massive uncertainty for teachers, parents and pupils?

Mr. Dunn: We are fully aware of the reputation at present enjoyed by Southend's grammar schools and the other schools which my hon. Friend mentioned. His comments will be fully taken into account if and when proposals come before us.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Evennett: asked the Prime Minister if she will list her official engagements for Tuesday 8 July.

The Prime Minister (Mrs. Margaret Thatcher): This morning I had meetings with ministerial colleagues and others. In addition to my duties in this House I shall have further meetings later today. This evening I hope to have an audience of Her Majesty The Queen.

Mr. Evennett: Will my right hon. Friend reassure the House and the nation that the wild allegations circulating about the supposed state of health of the British people are wholly false, and that the incidence of major and killer diseases, such as cancer and heart disease, is no higher in this country than in other Western industrial nations?

The Prime Minister: I am happy to say that this country has an excellent Health Service, which serves its people well. There may be many causes of heart disease, but the number of heart bypass operations has trebled since 1979.

Mr. Kinnock: When P. W Botha cannot find time to see the Foreign Secretary this week, when black leaders in South Africa will not see him, and when the attitude of both the African National Congress and the leaders of the front-line states could not be more plain or more opposed to the Prime Minister's attitude to sanctions, what exactly is the purpose of sending the Foreign Secretary to southern Africa this week?

The Prime Minister: President Botha will see my right hon. and learned Friend the Foreign Secretary on a date which has now been arranged in July, convenient to both of them. My right hon. and learned Friend will visit the front-line states before then and will hope to see some Heads of Government or Heads of State. I rather thought that the right hon. Gentleman was supporting my right hon. and learned Friend in his mission. Last week the right hon. Gentleman said that he wished my right hon. and learned Friend well, but at present the right hon Gentleman is doing everything that he can to undermine him.

Mr. Kinnock: That is impossible when the Prime Minister has done such an effective job on scuppering her right hon. and learned Friend. In any case, it is not my enthusiasm that is required, but the response of P. W. Botha. Why is it that the Prime Minister wants to wait upon the convenience of P. W. Botha? Does she not realise


that people of all parties in this country take it ill that our Foreign Secretary should be regarded with such contempt by a bunch of racist gangsters in South Africa?

The Prime Minister: The right hon. Gentleman must be hard up for a question if he asks such bunkum.

Mr. Kinnock: May I then ask the Prime Minister what, precisely, is the purpose of the Foreign Secretary going to southern Africa this week? Is he not filling in time on a fool's errand?

The Prime Minister: My right hon. and learned Friend goes to South Africa representing the 12 Governments of Europe. He is representing not only this country, but the 12 Governments of Europe, which have said:
The European Council decided to ask the future UK Presidency Foreign Minister to visit southern Africa, in a further effort to establish conditions in which the necessary dialogue can commence.
Twelve Governments, 12 Heads of Government, 12 Foreign Secretaries have great faith in my right hon. and learned Friend the Foreign Secretary.

Mr. Hayward: asked the Prime Minister if she will list her official engagements for Tuesday 8 July.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Hayward: Will my right hon. Friend, during her busy day, consider, in her role as Head of the Civil Service, the recent election as general secretary of the Civil and Public Services Association of a gentleman who does not support the constitution or the monarchy and opposes the independence of the Civil Service? Is it not astonishing that such a man should—according to The Guardian—be a lifelong member of the Labour party? Is it not members such as him who cause the Labour party to lose by-elections in such places as Filton in Bristol North-West, because while they belong to the party, people do not believe that it has rid itself of the Militants?

The Prime Minister: My hon. Friend makes his own point very effectively. The election within the CPSA is a matter for that union. If there were any allegations of irregularity, that would be a matter for the courts.

Mr. Heffer: If the Foreign Secretary is not successful in the mission on which the right hon. Lady and the other Governments have sent him, if Nelson Mandela is not released from prison and there is no end to apartheid, will the right hon. Lady assure us that there will then be economic sanctions against South Africa?

The Prime Minister: The position is set out in the communiqué issued by the 12 Governments, which states:
In the meantime in the next three months the Community will enter into consultations with the other industrialised countries on further measures which might be needed covering in particular a ban on new investments, the import of coal, iron, steel and gold coins from South Africa.
There is nothing automatic about that, but contingency plans are being made and other countries are being consulted. I remind the hon. Gentleman that my right hon. and learned Friend is going as the representative of all the nations of the European Community, which have great confidence in my right hon. and learned Friend.

Mr. Wrigglesworth: Will the Prime Minister consider today the continued deterioration in the competitiveness of British industry as measured by unit labour costs? Does she not agree that the deterioration is in large part due to

increases in pay led by the private sector and that it will inevitably lead to further job losses? Will she tell the House what, apart from uttering exhortations, the Government intend to do to prevent this?

The Prime Minister: As the hon. Gentleman is aware, the crucial figure is the unit labour cost. If unit labour costs rise faster here than in other countries, I agree that we are in danger of losing trade, and if we lose trade because we are not competitive, we lose jobs. It is, therefore, vital that wage negotiations should be conducted in such a way as to produce the result that our unit labour costs stay down.

Mr. Temple-Morris: asked the Prime Minister if she will list her official engagements for Tuesday 8 July.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Temple-Morris: Has my right hon. Friend had time today to see reports of a quite outrageous, vicious and brutal attack upon a News International distribution depot in Eastleigh, Hampshire? Has she also seen police reports that members of SOGAT '82 were involved? Will my right hon. Friend, before the House, condemn that action as the outrage that it is?

The Prime Minister: I believe that criminal behaviour of that sort will be condemned by decent people everywhere. I understand that the raid on Sunday was the tenth made so far on TNT premises around the country since the printing dispute between News International and the print unions began in January this year. It is part of an attack made by some people. The Hampshire police are conducting an urgent investigation so that those responsible can be brought before the courts. This is no way in which to conduct an industrial dispute.

Mr. Nicholas Brown: On 24 April the Prime Minister gave an assurance that Harland and Wolff's bid for AOR I had been comprehensively costed. Why are the designs for that ship still being reviewed at the Ministry of Defence?

The Prime Minister: As the hon. Gentleman is aware, we have done everything to facilitate the transfer of designs and we shall continue to do so. He also knows that we have done a great deal to enable Swan Hunter to obtain orders and to bring them forward so that it could do so.

Sir John Biggs-Davison: asked the Prime Minister if she will list her official engagements for Tuesday 8 July.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Sir John Biggs-Davison: Even if some Boers have been boorish, will Her Majesty's Government not be deterred from playing a helpful role in South Africa? Will my right hon. and learned Friend the Foreign Secretary consider suggesting to Bishop Tutu that it would be helpful if he would denounce the politics of the necklace? Will he also suggest to the ANC that it would be helpful if it were to suspend its death threats against two other bishops who, with millions of black Africans not of the ANC, stand for non-violence and dialogue with the state President?

The Prime Minister: Again I believe that most decent people everywhere totally and utterly condemn the necklace and the use to which it has been put in South Africa. It was for that and other reasons that the


Commonwealth conference called upon both sides for the suspension of violence—the precise thing for which my hon. Friend is calling—to bring about the conditions under which a dialogue can take place between the Government of South Africa and proper and full representatives of black South Africans. That is the way in the end that the problem will be solved, and in none other.

Mr. Pike: When the Prime Minister said last week that it was for the South African people to determine what type of Government they wanted in South Africa and that that Government had to be acceptable to all people of whatever background, did she mean that she was prepared to support black majority rule? Will she spell that out clearly and support the line taken by the Church of England Synod yesterday in calling for sanctions?

The Prime Minister: The Commonwealth conference and the communiqué have taken a similar view. Our role is to try to bring about the necessary negotiations and dialogue between the Government and the black South African people, and, indeed, all people in South Africa. If there were to be a constitutional convention, it would be for them to decide what kind of constitution would emerge and not for us to predetermine it for them.
The hon. Gentleman asked me about economic sanctions. No. I will not support full economic sanctions. I know of very few people who do, except those on the Labour Benches. I find it ironic that on the one hand people, including the Church, are calling for all help to end starvation, famine and poverty in South Africa, and on the other hand are calling for the very economic sanctions that would increase that.

Mr. Michael Colvin: asked the Prime Minister if she will list her official engagements for Tuesday 8 July.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Colvin: Has my right hon. Friend noted that BBC television has at last presented the other side of the South African sanctions equation by reporting last night that some 450,000 young blacks in the Homelands may well die of starvation if the faltering economy of South Africa does not soon recover? Does she agree that positive measures to aid all South Africans would do much more to assist that country to a true democracy than would wielding a big stick? Does she also agree that it is high time that leaders on all sides in South Africa learnt who their real friends were and stopped indulging in their favourite pastime of shooting themselves in the foot?

The Prime Minister: I heard of the broadcast to which I think my hon. Friend is referring. It was a BBC report on Operation Hunger in South Africa and a Mrs. Pearlman who runs it was broadcasting and pointed out the difficulties already in South Africa where some people, with the uncertainty of the present economic circumstances, are returning to the Homelands and are not able to support their families as they have done. She went on to say:
Sanctions would probably immediately double our normal death rate of 50,000 children under the age of 5 per year, and they could he placing at least another 400,000 children under 15 at risk.
We do not wish to go that way.

Mr. Ewing: Is the Prime Minister aware that tomorrow her predecessor as leader of the Tory party the right hon. Member for Old Bexley and Sidcup (Mr. Heath) will celebrate his 70th birthday? Will the Prime Minister convey our good wishes that the right hon. Gentleman will long continue to represent with strength and vigour the human face of the Conservative party, which is more important now than ever in view of her inhuman approach to almost every subject?

The Prime Minister: I gladly wish my right hon. Friend well, and a very happy birthday. He is as much against economic sanctions as I am.

European Community (Agricultural Spending)

Mr. Teddy Taylor: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 10, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
the decision of the Council of Finance Ministers yesterday to approve substantial additional agricultural spending in breach of the budgetary limits agreed by the European Council on 4 December 1984.
While EEC spending is a continuing issue, yesterday's decision is in a different category and strikes at the heart of this House's control of spending. The House agreed in 1985 to increase the VAT contribution to the EEC by 40 per cent. in real terms following a specific agreement concluded by the Prime Minister which provided, first, that the additional resources would last for several years, secondly, that strict budgetary controls would be applied, and, thirdly, that the rate of increase in farm spending would be limited to the natural increase in own resources. But the Commission has since advised in document 7113 that the 40 per cent. increase will be exhausted this year, and yesterday's unanimous decision of the Council of Finance Ministers proves that strict budgetary limits are dead and that farm spending arrears are out of control in relation to the agreement which was solemnly concluded.
If there is no debate today or tomorrow, our Chancellor and other Finance Ministers will conclude by Wednesday an agreement that ignores the December 1984 agreement which this House was advised was binding on the Council of Finance Ministers. If no debate is held, Parliament will

have surrendered a huge area of control over spending. I therefore conclude that this is an important, urgent and serious matter that should have the immediate attention of the House.

Mr. Speaker: The hon. Member for Southend, East (Mr. Taylor) asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he thinks should have urgent consideration, namely,
the decision of the Council of Finance Ministers yesterday to approve substantial additional agricultural spending in breach of the budgetary limits agreed by the European Council on 4 December 1984.
I have listened with great care to what the hon. Gentleman has said. As he knows, my duty in considering an application under Standing Order No. 10 is to decide whether it should be given priority over the business already set down for today or tomorrow. I regret that I cannot find that the matter that he has raised meets all the criteria laid down in the Standing Order, and I cannot therefore submit his application to the House.
Nevertheless, I say to the hon. Gentleman that I hope that even this week he will find other opportunities of raising this matter in the House.

STATUTORY INSTRUMENTS, &c.

Mr. Speaker: By leave of the House, I will put together the Questions on the two motions relating to statutory instruments.

Ordered,
That the draft Job Release Act 1977 (Continuation) Order 1986 be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the draft Air Navigation (Noise Certification) Order 1986 be referred to a Standing Committee on Statutory Instruments, &amp;c.—[Mr. Peter Lloyd]

Scottish Bank Notes

Mr. Dennis Canavan: I beg to move,
That leave he given to bring in a Bill to make Scottish pound notes and other Scottish bank notes legal tender throughout the United Kingdom and to facilitate the issue and distribution of Scottish pound notes and other Scottish bank notes throughout the United Kingdom; and for related purposes.
At present, three Scottish clearing banks—the Bank of Scotland, the Royal Bank of Scotland and the Clydesdale Bank — are allowed to issue their own bank notes in Scotland, but strictly speaking they are not classified as legal tender, even within Scotland. The only exception to this was during the two world wars earlier this century when, as an emergency measure, Scottish bank notes were classified as legal tender.
I still receive complaints from some Scottish visitors to England about the difficulty or embarrassment that they experience when they tender Scottish bank notes in a shop or a pub, or to a taxi driver, or elsewhere. At present, because of the law, there is no obligation to accept Scottish bank notes. My Bill would make them legal tender, not just in Scotland but throughout the United Kingdom. It would also enable the three Scottish banks to issue their pound notes and other bank notes throughout the United Kingdom. At present, for example, the Royal Bank of Scotland operates on both sides of the border, with branches down here, even in London. It has its own bank notes. The bank is allowed to issue them north of the border, but it is not allowed to issue them through its branches down here. My Bill would enable it to do so.
A few years ago my Bill would not have been all that popular, perhaps, down here. It might have added a little confusion. because at one time a larger number of Scottish hank notes was issued than is issued at present by those three banks. Also the Bank of England pound note was competing. However, since the Bank of England made what, to my mind, was the daft mistake of withdrawing its pound note completely in favour of the pound coin, my feeling is that many people down here are envious of what we in Scotland have—a choice between the pound coin and the pound note.
In Scotland, the pound note is far more popular than the pound coin. I submit that the reasons for this are obvious. If somebody changes a fiver or a tenner down here, he invariably receives a fistful of change. Sometimes it is very heavy change. Heavy, unwieldy coinage tends to make holes in men's pockets. Because the pound note is more popular than the pound coin north of the border, it is much easier for men to slip notes into their wallets or and for women to slip them into their handbags, or whatever.

Mr. James Lamond: Or sporran.

Mr. Canavan: My hon. Friend is quite right.
The pound coin is particularly confusing for some old people because the pound coin does not even look like a pound. It looks like one of the old threepenny bits, without the sawn-off edges. Old people were confused enough about decimalisation. Now that there are no pound notes at all the pound coin adds to the confusion.
If Scottish pound notes and other Scottish bank notes could be issued here they would soon catch on and would

be as popular as they are north of the border. That was borne out by an experimental walkabout that I had through the streets of London this morning. I asked various people and traders what they thought about Scottish bank notes. I told them who I was and said that I was introducing this Bill, and virtually everybody that I spoke to supported my Bill. Even people who expressed a preference for the pound coin—and they were in the minority—agreed that there should be a choice between the coin and the note. I sensed that overseas visitors were completely confused and outraged by the lack of opportunity to have pound notes in England. I told them that they could come to Scotland and that there they would get as many pound notes as they wanted, provided they paid for them.
I know of no other currency in the world where the lowest denomination note is valued at £5. I am glad to see that the Economic Secretary to the Treasury is in the House to hear what I have to say, because the Treasury and the Bank of England made a gross mistake in abolishing the pound note. However, it is not too late to correct it. The Economic Secretary is of Scottish ancestry; I think he was born in Scotland. I hope that he will hear in mind the points tnat I am making and will try to facilitate the distribution and exchange of Scottish pound notes and other bank notes in England. I hope that he will also facilitate the passage of the Bill.
The universal popularity of my Bill is reflected in the breadth of the sponsorship. Sometimes when I wish to introduce a Bill I am almost on my knees looking for 12 sponsors. This time I have been so inundated with requests that I have even had to turn down my hon. Friend the Member for Bolsover (Mr. Skinner), who normally sponsors all my Bills. This time all the places were filled before he got in. When I read out the names, my hon. Friend will probably be grateful that he did not add his name to the list, because I have hon. Members from all parts of the House, from one extreme to the other, including a few moderates like myself.
The list contains hon. Members from Scotland, Wales and England and includes my hon. Friend the Member for Jarrow (Mr. Dixon), who is well known and well admired as a great supporter of all things Scottish. He tells me that when he used to return from his frequent forays across Hadrian's wall he had his pockets full of Scottish bank notes. To his dismay, he found that some of the Geordie money traders would offer him only 19s 6d for a Scottish pound. My Bill would help to eradicate that kind of unfair exchange and injustice, and would help people north and south of the border.
The Bill is not a retrograde nationalist measure; rather it is an attempt to give a degree of international recognition to something that is part of the Scottish heritage. It would be of considerable benefit to many of Scotland's friends in other parts of the United Kingdom. I ask the House to support it.

Question put and agreed to.

Bill ordered to be brought in by Mr. Dennis Canavan, Mr. William McKelvey, Mr. Gerald Bermingham, Mr. Tom Clarke, Mr. Nicholas Winterton, Mr. Allen Adams, Mr. Ted Garrett, Mr. Ron Davies, Mr. Bill Walker, Mr. David Lambie, Mr. Ron Brown and Mr. Don Dixon.

SCOTTISH BANK NOTES

Mr. Dennis Canavan accordingly presented a Bill to make Scottish pound notes and other Scottish bank notes legal tender throughout the United Kingdom and to facilitate the issue and distribution of Scottish pound notes and other Scottish bank notes throughout the United Kingdom; and for related purposes: And the same was read the First time; and ordered to be read a Second time tomorrow and to be printed. [Bill 201].

WAYS AND MEANS

BROADCASTING: ADDITIONAL PAYMENTS BY PROGRAMME CONTRACTORS.

Resolved,
That provision be made (with retrospective effect) with respect to additional payments payable under section 32 of the Broadcasting Act 1981.

BUILDING SOCIETIES: REGULATIONS

Resolved,
That provision may be made amending section 343 of the Income and Corporation Taxes Act 1970.

OCCUPATIONAL PENSION SCHEMES

Resolved,
That provision may be made restricting the operation of—

(a) section 26(1)(a) of the Finance Act 1973;
(b) paragraph 32 of Schedule 23 to the Finance Act 1985.—[Mr. Ian Stewart.]

Orders of the Day — Finance Bill

Not amended (in the Committee) and as amended (in the Standing Committee), considered.

Ordered,
That the Finance Bill, as amended, be considered in the following order, namely, Amendments relating to Clause No. 39 and Schedule No. 8; new Clauses Nos. 2 to 17; new Clauses Nos. 19 to 25; new Clause No. 18; Amendment No. 29; new Clauses Nos. 26 to 30 and new Clause 31; and Amendments relating to Clauses Nos. 64 to 94, Clauses Nos. 1 to 3, Schedules Nos. 1 and 2, Clauses Nos. 4 and 5, Schedule No. 3, Clause No. 6, Schedule No. 4, Clauses Nos. 7 and 8, Schedule No. 5, Clause No. 9, Schedule No. 6, Clauses Nos. 10 to 31, Schedule No. 7, Clauses Nos. 32 to 38, Clause No. 40, Schedule No. 9, Clauses Nos. 41 and 42, Schedule No. 10, Clauses Nos. 43 and 44, Schedule No. 11, Clauses Nos. 45 and 46, Schedule No. 12, Clauses Nos. 47 to 55, Schedules Nos. 13 and 14, Clause No. 56, Schedule No. 15, Clause No. 57, Schedule No. 16, Clauses Nos. 58 to 62, Schedule No. 17, Clause No. 63, Schedule No. 18, Clauses Nos. 95 and 96, Schedule No. 19, Clause No. 97, Schedule No. 20, Clauses Nos. 98 to 104, Schedule No. 21, Clauses Nos. 105 to 108 and Schedule No. 22.—[Mr. Peter Lloyd.]

Schedule 8

PERSONAL EQUITY PLANS

The Financial Secretary to the Treasury (Mr. Norman Lamont): I beg to move amendment No. 37, in page 119, line 4, leave out
'in shares under a plan (a personal equity plan)'
and insert 'under a plan'.

Mr. Speaker: With this it will be convenient to discuss Government amendments Nos. 38 to 47.

Mr. Lamont: The amendments refer to the personal equity plan. Under our original proposals, investment in unit and investment trusts was excluded from the personal equity plan scheme. That was because, as my right hon. Friend the Chancellor of the Exchequer made clear, the scheme was primarily designed to encourage direct investment in equities. However, it was put to us that many people, particularly small investors, might not be able to spread their risks as widely as they might wish, at least in the early years of the scheme. The Government accepted that there was some substance in that point, and that the needs of such investors should be catered for.
The purpose of the amendments is to enable a modest proportion of investment in unit and investment trusts to be allowed under personal equity plans. That was made clear in the consultative document that we published, but the Bill, as originally drafted, contained references only to "shares" rather than "investments". In Committee, it was said that schedule 8 would be amended if necessary. As originally drafted, the schedule referred to "shares", which does not cover investment in unit trusts.
I hope that the change will be seen as fairly non-controversial and that the reasons for it are clear.

Mr. Terry Davis: As the Financial Secretary has said, the amendment is noncontroversial, as it has been moved in response to pressure


and representations from several parties on this side of the House. We welcome the amendment and certainly do not seek to divide the House against it.

Mr. Douglas Hogg: I, too, welcome the amendment, as I regard it as rather important. The previous restrictions confining the scheme to shares were undesirable, because they would have limited the range and type of investor. As one of the Government's aims is to encourage wider ownership in investments generally, this move is both dramatic and welcome, and I hope that it will receive wide publicity.

Amendment agreed to.

Amendments made: No. 38, in page 119, line 6, leave out 'shares' and insert 'investments'.

No. 39, in page 119, line 12, leave out `shares in which they may invest'

and insert 'investments they may make'.

No. 40, in page 119, line 14, leave out 'shares' and insert 'investments'.

No. 41, in page 119, line 15, leave out 'shares' and insert 'investments'.

No. 42, in page 119, line 25, leave out 'in shares'.

No. 43, in page 119, line 27, leave out 'them' and insert 'the investments'.

No. 44, in page 119, line 32, leave out 'in shares'.

No. 45, in page 119, line 41, leave out 'shares' and insert 'investments'.

No. 46, in page 120, line 8, leave out 'shares' and insert 'investments'.

No. 47, in page 120, line 12, leave out 'shares' and insert 'investments'.—[Mr. Norman Lamont.]

Mr. Terry Davis: I beg to move amendment No. 49, in page 120, line 13, at end insert—
'(4A) The regulations shall provide that an investor shall not be entitled to relief from tax in respect of shares in a company the whole or part of whose income derives

(a) from a trade or business carried out in whole or part in the Republic of South Africa; or
(b) from investment in a company or companies the whole or part of whose income is derived from a trade or business carried out in whole or part in the Republic of South Africa; or
(c) from transactions undertaken with or in connection with a company or companies the whole or part of whose income is derived from a trade or business carried out in whole or part in the Republic of South Africa; or
(d) from transactions with the Government of the Republic of South Africa.

(4B) The regulations shall provide that an investor shall not be entitled to relief from tax in respect of shares in a company which controls either directly or indirectly another company the whole or part of whose income is derived in the manner set out in subparagraphs (a), (b), (c) or (d) of paragraph (4A).'.
I begin by putting the amendment in context. I must emphasise that the Labour party objects most strongly to the inclusion of clause 39 and schedule 8 in the Bill, because it completely opposes the idea of the personal equity plan on grounds of principle and priority.
When the scheme was announced by the Chancellor of the Exchequer in the Budget on 18 March, he claimed that the scheme would help to make
The British people a nation of share owners.
He went art to claim that it was,
Specially designed to encourage smaller savers." [Official Report, 18 March 1986; Vol. 94, c. 177–78.]
As we established in Committee, the scheme is worth very little to the smaller investor, but it is worth a lot to the big

investor, especially the investor who has capital gains of more than £6,300 a year. The personal equity plan has little or nothing to offer to the genuine small investor. Frankly, we regard it as bogus.
We also oppose the scheme on the ground of priority. If the Chancellor can afford to give away £25 million a year, we could all think of many more deserving groups of people than those who can afford to invest in shares.
This afternoon, we are concerned about a different point. In the prospectus for potential plan managers issued by the Board of Inland Revenue, there is only one restriction on the shares which will qualify for tax relief. The investment must be confined to ordinary shares in United Kingdom incorporated companies quoted on the stock exchange. My amendment seeks to introduce another restriction—to ensure that the shares are not in a company whose income derives from conducting business in South Africa, or a company with investments in South Africa, or a company which conducts business with the South African Government.
The position in South Africa is well known to the Government and to all hon. Members; it does not need a detailed exposition from me. I simply remind the House that in South Africa only 15 per cent. of the population—the white people—are treated as full citizens and 85 per cent.—the black, Asian and coloured people—are treated as second-class citizens or worse. The system of apartheid is abhorred by the overwhelming majority of people in Britain. Hardly anyone on the House will stoop to defend it. But it is not enough o condemn apartheid The question is what should be done about it and what the British Government should do.
There is a clear difference between the Conservative Government and the Conservative party—or the Prime Minister and her friends—on the one hand, and the Labour party, all other political parties, even some Conservative Members and most of the people outside the House, on the other. Only the Prime Minister arid her more extreme supporters are resisting the call for international economic sanctions to be applied against South Africa, and the Prime Minister and those who think like her are rapidly becoming as isolated at home as they have become isolated abroad.
The amendment is concerned with a slightly different, although related, point. As matters stand, the Government are planning to encourage investment in South Africa by giving tax relief on the income derived from shares in companies investing in South Africa doing business in South Africa or doing business with the South African Government. Surely we can all agree that this policy is morally wrong and politically mistaken.
Surely even this Government would accept that the introduction of new tax incentives for investing in companies which are in turn investing in South Africa must constitute the wrong message to send to the South African Government now. Surely we must agree that, whatever our differences about the concept of the personal equity plan, we should exclude investors in companies conducting business in South Africa. I hope very much that the Government will accept the amendment.

Mr. Douglas Hogg: I hope that the Government will not accept the amendment. It is, as the hon. Member for Birmingham, Hodge Hill (Mr. Davis) has been frank enough to admit, an attempt to introduce sanctions by the back door.
The Labour party has no monopoly of concern about the policies of the South African Government. I am deeply opposed to the policies of the South African Government and I suspect that that is the position of almost the entirety of the members of my party. I support the mission of my right hon. and learned Friend the Foreign Secretary, and I agree entirely with those who say that we should introduce additional measures if it does not bring about any substantial concession.
The Government have already introduced measures against the South African Government and I feel certain that additional measures will be forthcoming if they are necessary. That, however, does not mean that the approach that is set out in the amendment is right. Indeed, it is wrong on at least two grounds. First, it is wrong to adopt a piecemeal policy. If Governments are to introduce measures against the South African Government, they must be part of a concerted approach and a general policy. I think that that is best done in concert with other EEC and western countries. Secondly, a policy of the sort that is set out in the amendment is curiously inflexible. A sanction that is incorporated in statute law is difficult to change. Therefore, it is not an especially effective method of inducing concessions. It is not something that can be used flexibly.
If the South African Government seek to make concessions, they will still be affected by the amendment if it is incorporated in legislation. On the grounds that we should not approach the problem of South Africa in a piecemeal fashion or adopt an inflexible method of the sort that is advocated by the hon. Member for Hodge Hill, I hope that the Government will not support the amendment.

Mr. Robert Sheldon: No one can doubt that it would be far better to have a list of sanctions separate from the Bill. That is the obvious approach. No one would be happier than myself if the Prime Minister or the Chancellor of the Exchequer were to say that the amendment is not a suitable way of introducing sanctions, that there are many other and better ways and that the Government intend to implement them. Unfortunately, we do not have that option before us. However, we have the amendment.
We can express through the amendment our need to consider whatever sanctions it might be possible to introduce to bring pressure to bear upon the South African Government. There will be many flaws in any amendment of the sort that is before us—for example, it is hard to determine the limits of involvement of South African companies — but the view that is expressed in the amendment is important.
The clause represents the great hope of the Chancellor of the Exchequer to bring about a body of knowledgeable shareholders throughout the country that will bring pressure to bear upon certain companies and improve their performance by causing them to respond to it. I do not believe that it will have anything like that effect. The British people are not the same as the people of the United States. There are many in the United States who spend a great deal of their time investing and switching their investments from one company to another. They are extremely knowledgeable about their investments. I do not think that most of the British work force would take that

approach. We are likely always to find that those who invest in shares in Britain will be a rather more knowledgeable part of the population than the majority and rather wealthier than the average person. The clause will not have anything like its intended effect.
The hon. Member for Grantham (Mr. Hogg) speaks with great concern, interest and understanding on these matters. He said that the amendment is an attempt to introduce sanctions by the back door. I do not agree. It is unfortunate that we do not have a front door. If we had a front door, I would be delighted to discuss much more effective methods of introducing sanctions. The amendment can be said to constitute a piecemeal approach, but if it were passed we could express in the Bill the fact that we shall use whatever means is available to us to show our detestation of the South African regime.

Mr. Douglas Hogg: I understand the right hon. Gentleman's position. I am not trying to denigrate the position he has adopted. Will he tell the House what would happen if the amendment were passed and it was incorporated into statute law and the South African Government made major concessions in their policy? Would we have to introduce primary legislation to delete the amendment?

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Mr. Sheldon: That would be a most happy occasion. There are not many opportunities for a Finance (No. 2) Bill. If we were to see in South Africa a position of one man, one vote, I should be pleased to be one of the signatories to such a Bill. Let us be realistic: that All not happen.

Mr. Hogg: The right hon. Gentleman is quite right. We shall not see a one man, one vote position in South Africa in the foreseeable future. However, we might see substantial concessions — for example, the freeing of Mandela and negotiations with the ANC. There comes a point when some concessions are so significant as to require this House and the Government to make changes in the statute law, which the right hon. Gentleman advocates.

Mr. Sheldon: I should be happy to negotiate with the hon. Gentleman if such an eventuality came about. I should be pleased to consider where, how and in what circumstances we might repeal the legislation.

Mr. David Winnick: Would the simple guide he that, when the representative organisations of the African majority and their white and coloured allies in South Africa say that no economic measures should be taken, it would be right for us to respond in the manner outlined by my right hon. Friend?

Mr. Sheldon: My hon. Friend has a most practical approach to such matters. At such a time when good fortune were to attend our labours, I do not think that there would be any problem about the repeal of a limited piece of legislation which the amendment proposes. We are concerned to express a clear view to put to disadvantage those companies that trade with and get a great deal of their profits from South Africa, and meet the conditions of the amendment. It is a muted clarion call, but at least it shows the views of my hon. Friends. It is a way in which we can bring to bear in some small way the


revulsion that we feel about the events taking place in South Africa. This is a limited but useful amendment, and I hope that it will be supported.

Mr. Michael Hirst: The amendment is undoubtedly a foolish piece of ideology. It is objectionable that Labour Members should try to pretend that they have a monopoly of concern to see the end of apartheid. When one looks back at speeches made by Labour right hon. and hon. Gentlemen, one may ask what they did in government to bring about the ending of apartheid.
I find it curious that the amendment is tabled in the name of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), because when the Prime Minister challenged him on economic sanctions at Question Time a few weeks ago, he wriggled out of giving any commitment to imposing economic sanctions and said that he w old prefer to think about other measures—measures short of economic sanctions. Yet he is the lead signatory on an amendment which, in its most naked form, intends to introduce such sanctions.
The wording of the amendment is ludicrous. Any company, any quoted security that invests, trades or invests in another group of companies that trades with South Africa would be excluded from PEP. There is hardly a leading British company quoted on the stock exchange in London—the sorts of investment that people would put by in their PEP—that does not have some form of investment in or trade with South Africa or with a third party that in turn trades with South Africa. I commend the hon. Member for Birmingham, Hodge Hill (Mr. Davis) for having the honesty to admit that the effect of such an amendment would be to emasculate PEP. I believe that I speak for my colleagues who welcome PEP. We certainly do not want to see the introduction of any wrecking amendments.
I had the opportunity to visit South Africa. Before I went, I condemned apartheid. I went there with an open mind, which is more than the hon. Member for Walsall, North (Mr. Winnick) has done. I am tired of people with open mouths and closed minds who will not see things for themselves. In the course of that visit, I looked at one of the investments of a British leading company—BP. BP has a substantial interest in coal mining. That interest produces a substantial number of jobs and a great deal of wealth for the people who work in those mines.
Moreover, the conditions in such mines are superior to anything that I have seen in mines in this country or those which I have visited in Europe. I was proud of the fact that a British company had set the highest standard of living and working conditions of its black African employees and that it was giving a standard to which other South African companies could aspire. I have no doubt that, if economic sanctions were introduced against South Africa, the jobs of a successful work force in that mine would come to an end overnight.
I do not believe that the amendment is likely to deter any company from trading with or investing in South Africa. It is likely to prevent people from taking advantage of what was intended in the Budget proposal for a personal equity plan. As such, I find it objectionable. I hope that my right hon. Friend the Financial Secretary to the Treasury will call upon his colleagues in the Government to oppose the amendment, should the Opposition choose to press it to a vote.

Mr. Ian Wrigglesworth: I share the anxiety that has been expressed on the Opposition Benches about putting economic pressure on the South African regime to change their policies. The amendment is drawn so widely that I think that there is virtually no organisation in the land that carries out business that would not be covered by it. I must say to the Labour Front Bench that that probably includes the Co-operative bank, Unity Trust and the other organisations to which they may he close. If transactions as well as investments arc included, any organisation or company— not to mention Mr. Maxwell and Pergamon printers, and so on—that is trading in almost any market, but especially internationally, if not directly, will be caught by the amendment. If the amendment had been better targeted and more tightly drawn, it would have been more effective and would have gathered wider support.
As I said in the Standing Committee, the PEP scheme is a poor scheme. In our view, it will not extend share ownership in this country in the way that the Chancellor trumpeted forth in his speech. It is a mouse of a scheme. I regret that the Government were not prepared to accept amendments that I and others tabled to make it a more effective and catch-all scheme that people could take up as small investors in the way that the Chancellor said he hoped would happen.
In my view, the amendment would not only undermine the scheme completely, because I can think of virtually no business organisation that would not be hit by it, but it would not achieve the purpose that the Opposition intend. I think that there are much more direct economic actions that can be taken and should be taken by the Government to persuade the South African Government to change their policies.

Mr. Winnick: My hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) has explained the criticisms that we have of the scheme. He went into considerable detail when the Bill was in Committee. Despite all the ministerial optimism about helping the small investor and what is described as "people's capitalism" and other propaganda, the plain truth is that the scheme will help those with substantial incomes. The Government are perfectly aware of that. The Chief Secretary admitted as much when he replied at the Committee stage.
Far too many people in our community have been penalised as a result of Government action in the past few years. In more recent times, owner occupiers who become unemployed will face difficulties because the assistance that they receive towards mortgage interest will be reduced. That was the subject of a debate initiated by the Labour party.
Of course, no one is surprised when a Tory Administration substantially assist the most prosperous in the community. The Government have tried to cover it up, giving the impression that they wanted to help the ordinary person but, as with the tax concessions, those who have benefited in some cases in terms of thousands of pounds a week have been the most prosperous. That is the function and role of the Tory Government and only the most naive person would expect them to act otherwise.
It is even more unacceptable that such tax relief is given for any form of investment in respect of shares in a company with South African involvement. The hon. Member for Stockton, South (Mr. Wrigglesworth) echoed


the comments of Tory Members. Of course, the hon. Member for Grantham (Mr. Hogg) said that he was against apartheid. I had not heard a single Conservative Member—even the hon. Member for Luton, North (Mr. Carlisle)—argue otherwise. I shall pay the hon. Member for Grantham the compliment of not putting him in the same category as the hon. Member for Luton, North and one or two other Conservative Members who might be associated with the South African lobby on the Tory Benches. I must say, with respect, that it is not sufficient to say that one is against the system in South Africa. The obvious question, which the Church of England debated yesterday with great seriousness, as one would expect, is: what does one intend to do about the events in South Africa? It is not sufficient to say, in effect, that one is opposed to the system and to leave it at that.

Mr. Douglas Hogg: I do not want the hon. Gentleman to misrepresent my position. I have made it clear, especially in this debate, that, if the concessions are not forthcoming as a result of the visit by my right hon. and learned Friend the Foreign Secretary, I hope that additional sanctions or measures will be imposed.

Mr. Winnick: That is a step forward, and it is about time, after all the years of tyranny. It is fortunate that, at long last, there are Conservative Members who take that line. I should be out of order if I were to discuss the Foreign Secretary's proposed trip.

Mr. Jeremy Hanley: Does the hon. Gentleman know the policy of the Church Commissioners on their investments in South Africa?

Mr. Winnick: I am sure the hon. Gentleman will be pleased to take up that matter as soon as he can with the Church of England authorities. It would be inappropriate for me to act as a spokesman on behalf of the Church Commissioners. After all, a Conservative Member answers in the House for the Church Commissioners. I see no reason why the hon. Member for Richmond and Barnes (Mr. Hanley) should not table a written question for priority answer on Thursday or Friday, and he would then be satisfied.
The hon. Member for Strathkelvin and Bearsden (Mr. Hirst) has said that we have closed minds. Presumably, anyone who is against apartheid, including the hon. Gentleman, has a closed mind. It would he odd if we had an open mind in view of the type of racial tyranny and oppression that exists in South Africa.
It is unfortunate that so many leading British companies have substantial holdings in South Africa. I have a list of category A companies, which are British companies holding 50 per cent. or more of the equity of a South African company. That is a fairly large equity. Those companies are household names—Barclays bank, BAT Industries, the Beecham group, Blue Circle, the BOC group, Boots, Brooke Bond, Cadbury Schweppes, Dunlop Holdings, GEC, Great Universal Stores, Rio Tinto-Zinc, Rank Xerox, Plessey, Rowntree Mackintosh, Tate and Lyle, Vickers, Wilkinson Sword and Wimpey. They are all leading British companies.

Mr. Douglas Hogg: On a point of order, Mr. Deputy Speaker. If the hon. Member for Walsall, North (Mr. Winnick) is correct in saying that Barclays bank holds a

substantial interest in South African companies, I fancy that the representative of the Social Democratic party—the hon. Member for Stockton, South (Mr. Wrigglesworth)—should have declared an interest. As I understand it, he is a paid representative of Barclays bank.

Mr. Deputy Speaker (Sir Paul Dean): It is a point of debate rather than a point of order. The House knows that, if an hon. Member has an interest to declare, he should declare it.

Mr. Wrigglesworth: Further to the point of order, Mr. Deputy Speaker. I am not a paid representative of Barclays bank, as I think the hon. Member for Grantham (Mr. Hogg) knows. I am an adviser to Barclays bank. That is well known in the House. I have, of course, no hesitation in declaring that position.

Mr. Winnick: Not only am I not the representative of the Church Commissioners but I am not, in any circumstances, a representative of or spokesman for that wretched group, the SDP. I leave it to the hon. Member for Stockton, South to square his conscience. No doubt he will do so in a way that is appropriate to him.
It is unfortunate that so many leading British companies have such a huge stake in the South African economy. Although Conservative Members—no doubt including the Financial Secretary to the Treasury—will tell us that this is all to the good for South Africa, I, like my right hon. and hon. Friends, have a different attitude. I believe that such involvement by leading British companies can do nothing but strengthen the South African economy and help the South African authorities to remain in power. The fact that some of those companies pursue a fairer employment policy than native companies in South Africa is beside the point. They play a leading role in the apartheid system, no matter how they argue otherwise. It is understandable that the South African authorities are so anxious that these British companies retain their stake in South Africa. We shall be taken seriously in our arguments against apartheid only when economic measures and sanctions are imposed, as inevitably they will be, and when British companies are clearly told by the Government of the day that their involvement in South Africa must end or be substantially reduced as I believe it should be.
The Labour party knows that the amendment will be voted down. The SDP and, no doubt, the Liberals will vote with the Tories. We are under no illusions. Anyone who believes that this is just a propaganda ploy and that, if the Labour party were in office, we would act differently does not understand. The other day, the Prime Minister baited my right hon. Friend the Member for Leeds, East (Mr. Healey) about what he did or did not do in Cabinet in 1967 in respect of selling arms to South Africa, but 140 Labour Members of Parliament made it clear then that in no circumstances would they allow their Government to change their policy. That policy was retained as a result either of the view of the 140 Labour Members of Parliament or of the way in which our views were made clear to the Whips. I was a Member at that time. We made it clear that we were not willing to support any Government, including our own, who pursued a policy of selling arms to South Africa. It is understandable that in 1967 the Labour Cabinet decided to continue their policy.
During the emergency debate on 19 December 1967, under Standing Order No. 9, Conservative Members were highly critical of the Labour Government for pursuing a policy of not selling arms to South Africa.

Mr. Deputy Speaker: Order. The hon. Member is straying from the subject. He must relate his comments to personal equity plans.

Mr. Winnick: I appreciate your guidance, Mr. Deputy Speaker.
We demonstrated in 1967 that we were not playing with words. We do not have to wait many years to understand the tyranny in South Africa. Although the amendment will he voted down, we shall have established an important principle. Other sections of the community here are making it clear that economic measures and sanctions should be imposed on South Africa. We say, as Labour Members of Parliament in a Tory-dominated House of Commons, that that should be done. That is the way in which we can associate ourselves with those in South Africa fighting tyranny who want us to take those economic measures. I am sure that people will understand what we are trying to do. In effect, we are saying to the country, "We totally oppose the Tory Government's collaboration policy. We are for sanctions and effective measures against South Africa." This is one way in which we are illustrating that measures could be taken, but will not be taken because of the Government's action.

Mr. Norman Lamont: I am sorry that the personal equity plan has received such a sour response from Opposition Members. The purpose of the personal equity plan is to increase share ownership and make it available to people of modest means. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) seemed to pooh-pooh the whole idea. He said that he did not think that the United Kingdom could acquire the same interest in investment as the United States. It may be difficult to get that sort of popular interest, but I think that most of my hon. Friends would agree that it would be excellent if we could imitate that part of American culture and that our economic success would be more likely to be assured if people took a close interest in the fortunes of individual companies.
The hon. Member for Birmingham, Hodge Hill (Mr. Davis) almost openly admitted that his amendment would have a severe effect on the personal equity plan. The hon. Member for Stockton, South (Mr. Wrigglesworth) agreed with the hon. Member for Hodge Hill that he did not think it was a satisfactory scheme because it did not go far enough. However, at least he had the grace not to want to wreck the scheme. He at least wanted to preserve it and enable it to get off the ground. It may be a modest start, but it could be the modest start of something very significant and far-reaching.
The hon. Member for Hodge Hill said that the scheme would benefit the wealthier investor. That was echoed by the hon. Member for Walsall, North (Mr. Winnick). At times there seemed to be a conflict between Opposition Members. Some were saying that it was a mouse of a scheme and did not amount to anything and others were saying that it gave too much benefit to the rich. We believe that it can benefit the small investor. I imagine that Opposition Members think that it may not because they believe that it is unlikely that a capital gain will arise which is anywhere near the indexed rate of £6,300 a year.

However, that does not take account of two factors. The first is the relief that is avail able on dividends that are reinvested and the second is the gearing effect that will have over time as the portfolio and the value of the portfolio build up. I believe — I am sure that I carry my hon. Friend the Member for Strathkelvin and Bearsden (Mr. Hirst) with me—that it could be significant for the smaller investor.

Mr. Terry Davis: I believe that the Financial Secretary missed the discussion on this schedule in Committee. At that time he had not been appointed as Financial Secretary. May I assume that he has taken the trouble to read our proceedings in Committee? Will he answer the point that I made in Committee about the comparison between the tax benefit and the cost of paying the manager of the PEP to run the plan? As the Financial Secretary will remember, in Committee I showed that the charge to be expected for the management of a PEP would exceed the income tax refund.

Mr. Lamont: Not having been in the Standing Committee, I do not know what the hon. Gentleman said about that.

Mr. Davis: Has the Financial Secretary not taken the trouble to read our debates? Perhaps that is why he has been put up to reply to this debate.

Mr. Lamont: I may have read innumerable copies of Standing Committee proceedings on the Finance Bill before I appeared on that Committee myself. If the hon. Gentleman will excuse me, I certainly do not carry in my head every argument that he puts when I am not present. I know that he expects me to follow his speeches very closely, and indeed I do. I understand the point that the hon. Gentleman has made because he has put it to me. However, the effect of the rolled-up relief available to dividends and the effect of the cumulative investment over the period of a plan could be significant to the small investor. That is the only point that I make, and I think it is important because an attempt has been made to suggest that the scheme is not important for the small investor. We intend it to be designed for the small investor and we intend to do what we can to encourage wider share ownership.
Most of the debate has been about South Africa. The purpose of the amendment is to take measures which, it has been argued, might have some effect on the problems in South Africa. I would like to explain to the House why the amendment would be quite unworkable. Apart from any other objection I might have to it—the amendment may give Opposition Members some moral satisfaction; it may be a moral free lunch—it is unworkable.
As my hon. Friend the Member for Strathkelvin and Bearsden pointed out, the amendment would exclude from the personal equity plan proposal not merely any company or its subsidiary which traded or invested in South Africa, but any company which had any transactions with such a company. That would be a far-reaching and wholly unenforceable provision. Who would enforce it? Would plan managers have to seek an assurance from companies that they would not trade with or invest in South Africa? Would United Kingdom companies have to check, before conducting any transaction with any other company in the world, that neither it nor any of its subsidiaries derived any


income from South Africa? How, in the real world, would failures to comply with this restriction be discovered, either by plan managers or the Inland Revenue?
Secondly, is it fair that a personal equity plan holder should be denied his or her tax relief—however much Opposition Members may not sympathise with the concept — because, without his or her or the plan manager's knowledge, the company in which the money was invested turned out to have South African connections? What possible explanation would the hon. Member for Hodge Hill give to a widow who suddenly found herself subjected to unforeseen capital gains tax? How would the hon. Gentleman justify to any investor with a modest income that he would be presented with an unforeseen capital gains tax liability for which there were no funds?
As my hon. Friend the Member for Grantham (Mr. Hogg) said, it is the introduction of sanctions by the back door. It is penalising the wrong people because it is putting the penalty on the investor and the plan manager for investing in companies which would be doing something of which they had no knowledge and no way of finding out and something which was not illegal. If that is not sanctions by the back door, I do not know what is. My hon. Friend the Member for Grantham was right to describe it in that way.
Even if we accepted the principle of this amendment, which we certainly do not, we could not advise the House to enact legislation which is impracticable and cannot be enforced. The hon. Member for Walsall, North said that this concerns a matter of principle. The amendment is not about a matter of principle; it is about a gesture that the hon. Member for Hodge Hill is anxious to make. For that reason, I advise my right hon. and hon. Friends to reject the amendment.

Mr. Terry Davis: Once again, we have found that the Financial Secretary has been careless in his homework. I did not expect him to read all the reports of our proceedings before he joined the Committee after his appointment as Financial Secretary in succession to the right hon. Member for Croydon, Central (Mr. Moore), but he could have taken the trouble to read our discussion about PEP before he responded to the debate today. It is clear from what he has said that he has not taken the trouble to read the reports of the proceedings when we debated the schedule in Committee. If he had, he would not have dared to describe the investors who will benefit from the personal equity plan as "small investors of modest means".
The right hon. Gentleman would have known that we showed to the satisfaction, not only of my hon. Friends but of many people sitting in the Public Gallery listening to the debate, that the people who will benefit will he those whose income exceeds £25,000 a year. I am prepared to admit that the Financial Secretary may regard that as modest means, but I do not think that any Opposition Member would regard an income of £25,000 a year as modest. He talks about the classic Conservative widow and cries at the Dispatch Box about the widow of modest means who suddenly discovers that she has become liable for capital gains tax because she has invested in a company trading with South Africa. Elsewhere, in other investment, she will already have had to make a capital gain of £6,300

in that year alone, but that widow of modest means was not sharp enough to know that she was investing in South African companies. We recognise that the Financial Secretary, unfortunately, has maintained his usual standard in replying to the debate.
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The hon. Member for Strathkelvin and Bearsden (Mr. Hirst) fell below his usual standard in his contribution to the debate. Clearly he has not listened to what I said in moving the amendment. He said that he regarded it as objectionable that Opposition Members should claim a monopoly of concern over what is happening in South Africa. I specifically said, and took care to say, that I recognised that some Conservative Members were concerned about South Africa. The hon. Gentleman did not listen. I accepted that some Conservative Members, such as the hon. Member for Grantham (Mr. Hogg), who may be a Johnny-come-lately, said today for the first time that he shared the concern of my hon. Friend the Member for Walsall, North (Mr. Winnick) about what is happening in South Africa.
I was careful not to claim a monopoly of concern. The hon. Member for Strathkelvin and Bearsden is prepared to complain about what is happening in South Africa, like the hon. Member for Stockton, South (Mr. Wrigglesworth). In fact, I am not sure about the hon. Member for Strathkelvin and Bearsden. His hon. Friend the Member for Grantham was prepared to condemn what was happening, but he said that he took pride in some of the things that were happening. I see very little in which to take pride in South Africa.

Mr. Hirst: The hon. Gentleman, in turn, is falling short of his usual standard. I made it absolutely plain that I admired the positive and progressive way in which British investments in South Africa had advanced the economic and, in turn, political rights and conditions of people who work in South Africa. I fear that the hon. Gentleman has misconstrued my words. I should be interested to hear him say whether he accepts my proposition that his amendment will wreck the prospect of personal equity plans being successful in this country.

Mr. Davis: If I misconstrued what the hon. Gentleman said, I apologise unreservedly, because that is not my wont. Nevertheless, he objected to the alleged claim of a monopoly of concern by the Opposition. That has not occurred during debate. I hope that the hon. Gentleman will find an opportunity to apologise for that.
The hon. Gentleman made an important and interesting point about the effect on the British economy, which I shall deal with later. However, first, I should like to deal with the hon. Member for Grantham, who told us that he is deeply opposed to the policies of the South African Government and that he could conceive that additional measures—I think that he meant sanctions—may be necessary if his right hon. and learned Friend the Foreign Secretary returns empty-handed from South Africa, and there are not improvements in the situation there.
The hon. Member for Grantham said that the amendment represented sanctions by the back door. Like my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), I would much prefer sanctions by the front door. Unfortunately, we are not getting sanctions by the front door. We must look for other ways in which to


express our concern and dissociate ourselves from economic policies that are bolstering and supporting the South African Government.
The hon. Member for Grantham also said that it was wrong to approach the matter in a piecemeal way. Again, as my right hon. Friend the Member for Ashton-under-Lyne said. I would prefer it if we could approach the matter in a comprehensive way and had a list of sanctions to be imposed upon the South African Government. Unfortunately, that matter is not before us. We have to deal with matters as they come before us and in the form in which they come before us. Today we are dealing with the Finance Bill and a schedule in it.
This Bill extends economic involvement in South Africa, and we say that it is wrong to increase the involvement of British investors in South Africa at present. If my amendment were accepted, it would still remain legal for people to invest in South Africa, but they would not get tax incentives to do so. Surely it is wrong for the British Government to give tax relief to people, to encourage them to invest, when that investment may go into companies that are taking part in economic suppression in South Africa.

Mr. Douglas Hogg: The hon. Gentleman's argument is most eloquent. He will recognise that his amendment would penalise companies that are trading with other companies that have an interest in South Africa. Was that a drafting mistake on his part, or was it intended?

Mr. Davis: It was my intention to avoid any loopholes. If the hon. Gentleman co-operated with us, in his new enthusiasm for measures to cope with the situation in South Africa, in drafting amendments that will not penalise companies that inadvertently do small business with other companies that are active in South Africa, we would welcome his assistance. That assumes that we share the ultimate objective. I do not think that we do. Unfortunately, that is the problem. Therefore, we must rely on my poor efforts of draftsmanship, which will encompass companies that do business with other companies that are active in South Africa.
The hon. Member for Grantham also said that it was wrong to approach the matter by way of statute law because statute is inflexible. I have a great deal of sympathy with that point. However, the answer lies in the hands of the Government. They have put a restriction on personal equity plans, but they have not put it in the Bill —it is not in the schedule. They have put it in a green document called "Prospectus for Potential Plan Managers". The Government have included in that prospectus, published by the Board of Inland Revenue, a restriction that requires that the shares must be in a company which is a United Kingdom incorporated company quoted on the stock exchange. If it would be inflexible to put the measure into statute law, as the hon. Member for Grantham said, let us have something in the prospectus instead. We should tell the potential plan managers that the measure will be included in regulations, which will be published, so that they can be amended when, on the happy day that cannot come too quickly for my hon. Friends and myself, the South African Government change. I fear that it will have to be the South African Government who change. The present one will not change their policies. On that day we can drop this little sanction. If the Government said that, I would withdraw

my amendment. I appreciate the point that was made by the hon. Member for Grantham, but that is not what the Government said. The Financial Secretary did not give us that olive branch. He did not say, "We did not want to be so inflexible by writing the measure into the statute book." He has left us with no alternative. The Government will not do anything. They will not introduce any such restriction.
If the Government had said, "We shall let the measure go into statute law," of course, the situation might change and the hon. Member for Grantham would say to the House of Commons, "We must remove that restriction." Then it would be open for the Government to bring in one of their famous retrospective Bills. We are now used to dealing with their retrospective Bills. We have the restrospective Rate Support Grants Bill, which makes legal something which was illegal. It was admitted to be illegal by the Secretary of State for the Environment in a court of law. Yet, retrospectively, the Government will make it legal.
Similarly, the Government could introduce a Bill that retrospectively gave tax relief on investments in South Africa for the period between the change in the South African Government or in their policies and when the Government were able to get the Bill through Parliament. In the meantime, the Government could give us one of their extra-statutory concessions that we heard about in Committee. We can have an extra-statutory concession to exempt American service men from paying road tax while the Finance Bill goes through the House of Commons. I would not oppose a similar extra-statutory concession in these circumstances. Therefore, we shall not take too seriously that objection from the hon. Member for Grantham. This is not a case of imposing sanctions on people who are already doing business in South Africa.

Mr. Hirst: How does the hon. Gentleman propose to enforce the amendment? Upon whom will the obligation fall to determine whether a group has or has not traded with South Africa, or has or has not invested in South Africa and, more particularly, has or has not traded with a connected party that may or may not have traded with South Africa?

Mr. Davis: That is a fair point. I would envisage the measure working in this way. The plan manager, who has responsibility for the administration of the personal equity plan, would be responsible for ensuring that investments took place only in the shares of companies that were not disqualified, in the same way in which he must take care that investment takes place only in shares in United Kingdom incorporated companies quoted on the stock exchange. Of course, he would depend on the information provided by the companies. That is what I would expect. If companies in this country are as anxious as they should be to ensure changes in South Africa, to honour the law and to honour the wishes of Parliament, I would expect them to be able to provide that information which, in my experience, is not difficult to provide. The amendment would ensure that tax incentives should not be given to people to encourage them to invest in South Africa.

Mr. Hirst: rose—

Mr. Davis: I have given way to the hon. Gentleman several times.

Mr. Hirst: I am grateful to the hon. Gentleman for trying to ' tell the House how he would enforce the


amendment. I ask him to address himself to one further point: how would he deal with a situation in which a fund manager, in good faith, invests in a company which has no such dealings in South Africa, but which, in the same tax year as the tax allowance is given, suddenly discovers that the company has subsequently some transaction in South Africa? What is the position of the personal equity plan holder in those circumstances?

Mr. Davis: I would he prepared to accept a plea of good faith as a defence in any sort of proceedings.
The hon. Members for Stockton, South and for Strathkelvin and Bearsden gave the game away because it was they who said it was difficult to find any leading company which was not involved in South Africa. The hon. Member for Stockton, South went further because he told the House that he regarded the personal equity plan as a poor scheme — a mouse of a scheme. When the Financial Secretary used those words in his speech, he was quoting from the hon. Gentleman. I must tell the Financial Secretary that I do not attach too much importance to those criticisms. The Minister should not take such criticism seriously because, if he took the trouble to read reports of our previous proceedings, he would know that, at one time, the hon. Member welcomed the personal equity plan. 1 do not mean that another spokesman for the alliance welcomed the plan—I will come to that later—but the hon. Member for Stockton, South told the House that he was
pleased … to welcome the Government's announced intention to examine the possibility of giving tax relief on profit-sharing".
I think he was referring to this personal equity plan because he went on to say:
Similarly, we support in principle the Government's proposals for tax relief and other benefits for people buying shares for the personal equity plan." — [Official Report, 20 March 1986; Vol. 94, c. 456.]
What was pleasure has now become a criticism of this mouse of a scheme. But even pleasure was something of a change because the hon. Member for Colne Valley (Mr. Wainwright) had previously said that he gave the personal equity plan an unqualified welcome.

Mr. Wrigglesworth: Will the hon. Gentleman at least have the good grace to read the whole of the speech? Perhaps he will read the remarks which I made in the Budget debate wherein, as the Minister rightly said, I welcomed the principle—I still do—of the plan. But it is being introduced in such an ineffective way that it can rightly be described as a mouse of a scheme. That does not mean that the principle is wrong and that is why, as the hon. Gentleman is aware, I sought to move amendments in Committee.

Mr. Davis: I believe we are getting closer to the heart of alliance policy, which is that it wishes to give more tax relief.

Mr. Wrigglesworth: Yes.

Mr. Davis: The hon. Gentleman says yes, but his party opposed taking a penny off income tax. It objected to taking a penny off the income tax of those on low earnings, yet it wishes to give more money to people who earn £25,000 a year and invest in shares on the stock exchange. That is its priority.

Mr. Deputy Speaker: Order. This is beginning to sound very much like a regurgitation of a Committee stage debate. I hope that the hon. Gentleman will return to the amendment.

Mr. Davis: Indeed, Mr. Deputy Speaker.

Mr. Wrigglesworth: As I am sure the hon. Gentleman has studied the Order Paper closely, and as he participated in last year's debate, he will be aware that our proposals are contained clearly in an amendment to the Finance Bill. It outlines the scheme that we would introduce.

Mr. Davis: I thank the hon. Member for that trailer. Now we all know where the hon. Member for Stockton, South stands.
I wish to deal with the more serious remarks of the hon. Member for Strathkelvin and Bearsden. He told us that there was hardly a leading company which did not trade with South Africa and he argued that the House should oppose the amendment because it would emasculate the personal equity plan. I did not make that claim; I am not going to describe the amendment as a mouse, but I did not claim that it would emasculate the personal equity plan. However, having listened to the hon. Gentleman and my hon. Friend the Member for Walsall, North (Mr. Winnick), I realise that it is clear that British business is so deeply enmeshed in the South African economy that it would be difficult for savers—these people of modest means, £25,000 a year — to invest in the shares of companies which are not undertaking business in South Africa, trading with companies undertaking business in South Africa or doing business with the South African Government.
4.45 pm
My hon. Friend the Member for Walsall, North came to the heart of the matter when he said that it is not enough to say that one is opposed to the system in South Africa; the question is, what are we to do about it? This is one small measure, but at least it sends a message to the South African Government. We are not prepared to allow the British Government to give tax relief to people who invest in the economy of that most evil regime. Therefore, I ask my hon. Friends to support me in the Division Lobby.

Question put, That the amendment be made:—

The House divided: Ayes 134, Noes 232.

Divison No. 246]
[4.45 pm


AYES


Archer, Rt Hon Peter
Cocks, Rt Hon M. (Bristol S)


Ashton, Joe
Cohen, Harry


Atkinson, N. (Tottenham)
Coleman, Donald


Banks, Tony (Newham NW)
Cook, Frank (Stockton North)


Barnett, Guy
Cook, Robin F. (Livingston)


Beckett, Mrs Margaret
Corbett, Robin


Bell, Stuart
Craigen, J. M.


Bennett, A. (Dent'n &amp; Red'sh)
Cunningham, Dr John


Bidwell, Sydney
Dalyell, Tarn


Blair, Anthony
Davies, Ronald (Caerphilly)


Bray, Dr Jeremy
Davis, Terry (B'ham, H'ge H'I)


Brown, Hugh D. (Provan)
Deakins, Eric


Brown, N. (N'c'tle-u-Tyne E)
Dewar, Donald


Brown, R. (N'c'tle-u-Tyne N)
Dixon, Donald


Buchan, Norman
Douglas, Dick


Callaghan, Jim (Heyw'd &amp; M)
Duffy, A. E. P.


Campbell-Savours, Dale
Dunwoody, Hon Mrs G.


Canavan, Dennis
Eastham, Ken


Carter-Jones, Lewis
Edwards, Bob (W'h'mpt'n SE)


Clarke, Thomas
Evans, John (St. Helens N)


Clay, Robert
Ewing, Harry


Clelland, David Gordon
Fatchett, Derek


Clwyd, Mrs Ann
Faulds, Andrew






Field, Frank (Birkenhead)
Morris, Rt Hon A. (W shawe)


Fields, T. (L'pool Broad Gn)
Nellist, David


Fisher, Mark
O'Neill, Martin


Flannery, Martin
Orme, Rt Hon Stanley


Foot, Rt Hon Michael
Park, George


Forrester, John
Pavitt, Laurie


Foster, Derek
Pendry, Tom


Foulkes, George
Pike, Peter


Fraser, J. (Norwood)
Powell, Raymond (Ogmore)


Garrett, W. E.
Radice, Giles


George, Bruce
Randall, Stuart


Gilbert, Rt Hon Dr John
Redmond, Martin


Gourlay, Harry
Rees, Rt Hon M. (Leeds S)


Hamilton. W. W. (Fife Central)
Richardson, Ms Jo


Hardy, Peter
Roberts, Ernest (Hackney N)


Harrison, Rt Hon Walter
Robertson, George


Haynes, Frank
Robinson, G. (Coventry NW)


Heffer, Eric S.
Rogers, Allan


Hogg, N. (C'nauld &amp; Kilsyth)
Rooker, J. W.


Home Robertson, John
Ross, Ernest (Dundee W)


Hoyle, Douglas
Rowlands, Ted


Hughes, Roy (Newport East)
Sheerman, Barry


Hughes, Sean (Knowsley S)
Sheldon, Rt Hon R.


Janner, Hon Greville
Shore, Rt Hon Peter


John, Brynmor
Short, Ms Clare (Ladywood)


Jones, Barry (Alyn &amp; amp;Deeside)
Silkin, Rt Hon J.


Kaufman, Rt Hon Gerald
Skinner, Dennis


Lambie, David
Smith, Rt Hon J. (M'ds E)


Leighton, Ronald
Snape, Peter


Lewis, Ron (Carlisle)
Spearing, Nigel


Lewis, Terence (Worsley)
Straw, Jack


Lloyd, Tony (Stretford)
Thomas, Dafydd (Merioneth)


McCartney. Hugh
Thomas, Dr R. (Carmarthen)


McDonald, Dr Oonagh
Tinn, James


McKay, Allen (Penistone)
Torney, Tom


McKelvey, William
Warden, Gareth (Gower)


MacKenzie, Rt Hon Gregor
Wareing, Robert


McTaggart, Robert
Wigley, Dafydd


McWilliam, John
Williams, Rt Hon A.


Madden, Max
Wilson, Gordon


Marek, Dr John
Winnick, David


Maxton, John



Michie, William
Tellers for the Ayes:


Millan, Rt Hon Bruce
Mr. James Hamilton and


Miller, Dr M. S. (E Kilbride)
Mr. Allen Adams.


Mitchell, Austin (G't Grimsby)



NOES


Adley, Robert
Clegg, Sir Walter


Aitken, Jonathan
Cockeram, Eric


Amess, David
Colvin, Michael


Ancram, Michael
Conway, Derek


Atkins, Rt Hon Sir H.
Coombs, Simon


Atkinson, David (B'm'th E)
Cope, John


Banks, Robert (Harrogate)
Corrie, John


Batiste, Spencer
Couchman, James


Beaumont-Dark, Anthony
Critchley, Julian


Bennett, Rt Hon Sir Frederic
Currie, Mrs Edwina


Best, Keith
Dickens, Geoffrey


Biggs-Davison, Sir John
Dunn, Robert


Blackburn, John
Durant, Tony


Boscawen, Hon Robert
Fallon, Michael


Bottomley, Mrs Virginia
Farr, Sir John


Bowden, Gerald (Dulwich)
Favell, Anthony


Brandon-Bravo, Martin
Fenner, Mrs Peggy


Bright, Graham
Finsberg, Sir Geoffrey


Brown, M. (Brigg &amp; Cl'thpes)
Fletcher, Alexander


Bruinvels, Peter
Fookes, Miss Janet


Bryan, Sir Paul
Forsyth, Michael (Stirling)


Buchanan-Smith, Rt Hon A.
Forth, Eric


Budgen, Nick
Fowler, Rt Hon Norman


Burt, Alistair
Fox, Sir Marcus


Butterfill, John
Fraser, Peter (Angus East)


Carlisle, Kenneth (Lincoln)
Freeman, Roger


Carlisle, Rt Hon M. (W'ton S)
Galley, Roy


Carttiss, Michael
Gardiner, George (Reigate)


Cash, William
Gardner, Sir Edward (Fylde)


Chope, Christopher
Garel-Jones, Tristan


Clark, Dr Michael (Rochford)
Gilmour, Rt Hon Sir Ian


Clark, Sir W. (Croydon S)
Glyn, Dr Alan





Gow, Ian
Murphy, Christopher


Gower, Sir Raymond
Neubert, Michael


Greenway, Harry
Nicholls, Patrick


Gregory, Conal
Norris, Steven


Griffiths, Sir Eldon
Onslow, Cranley


Griffiths, Peter (Portsm'th N)
Osborn, Sir John


Hampson, Dr Keith
Ottaway, Richard


Hanley, Jeremy
Page, Sir John (Harrow W)


Hannam,John
Page, Richard (Herts SW)


Hargreaves, Kenneth
Patten, Christopher (Bath)


Harris, David
Pawsey, James


Harvey, Robert
Percival, Rt Hon Sir Ian


Hawkins, C. (High Peak)
Pollock, Alexander


Hawkins, Sir Paul (N'folk SW)
Powley, John


Hawksley, Warren
Prentice, Rt Hon Reg


Hayes, J.
Proctor, K. Harvey


Hayhoe, Rt Hon Barney
Pym, Rt Hon Francis


Hayward, Robert
Raffan, Keith


Heathcoat-Amory, David
Renton, Tim


Heddle, John
Rhodes James, Robert


Henderson, Barry
Rhys Williams, Sir Brandon


Hickmet, Richard
Ridley, Rt Hon Nicholas


Hicks, Robert
Ridsdale, Sir Julian


Higgins, Rt Hon Terence L.
Robinson, P. (Belfast E)


Hind, Kenneth
Roe, Mrs Marion


Hirst, Michael
Rowe, Andrew


Holland, Sir Philip (Gedling)
Ryder, Richard


Hordern, Sir Peter
Sackville, Hon Thomas


Howard, Michael
Sainsbury, Hon Timothy


Howarth, Alan (Stratf'd-on-A)
St. John-Stevas, Rt Hon N.


Howarth, Gerald (Cannock)
Sayeed, Jonathan


Howell, Ralph (Norfolk, N)
Shaw, Giles (Pudsey)


Hunt, David (Wirral W)
Shaw, Sir Michael (Scarb')


Irving, Charles
Shepherd, Colin (Hereford)


Jackson, Robert
Silvester, Fred


Jessel, Toby
Sims, Roger


Johnson Smith, Sir Geoffrey
Skeet, Sir Trevor


Jones, Gwilym (Cardiff N)
Smith, Tim (Beaconsfield)


Jones, Robert (Herts W)
Soames, Hon Nicholas


Kellett-Bowman, Mrs Elaine:
Speed, Keith


Kershaw, Sir Anthony
Spencer, Derek


Key, Robert
Spicer, Jim (Dorset W)


Knight, Greg (Derby N)
Spicer, Michael (S Worcs)


Knight, Dame Jill (Edgbaston)
Stanbrook, Ivor


Knowles, Michael
Stanley, Rt Hon John


Lamont, Rt Hon Norman
Stern, Michael


Latham, Michael
Stevens, Lewis (Nuneaton)


Lawler, Geoffrey
Stewart, Allan (Eastwood)


Lawrence, Ivan
Stewart, Andrew (Sherwood)


Lawson, Rt Hon Nigel
Stewart, Ian (Hertf'dshire N)


Leigh, Edward (Gainsbor'gh)
Sumberg, David


Lennox-Boyd, Hon Mark
Tapsell, Sir Peter


Lester, Jim
Taylor, Teddy (S'end E)


Lewis, Sir Kenneth (Stamf'd)
Tebbit, Rt Hon Norman


Lilley, Peter
Temple-Morris, Peter


Lloyd, Peter (Fareham)
Terlezki, Stefan


Lord, Michael
Thomas, Rt Hon Peter


Lyell, Nicholas
Thompson, Donald (Calder V)


MacGregor, Rt Hon John
Thompson, Patrick (N'ich N)


MacKay, Andrew (Berkshire)
Thorne, Neil (Ilord S)


McLoughlin, Patrick
Thornton, Malcolm


McNair-Wilson, M. (N'bury)
Thurnham, Peter


Madel, David
Townend, John (Bridlington)


Major, John
Townsend, Cyril D. (B'heath)


Malins, Humfrey
Twinn, Dr Ian


Marland, Paul
Vaughan, Sir Gerard


Marlow, Antony
Viggers, Peter


Marshall, Michael (Arundel)
Waddington, David


Mather, Carol
Wakeham, Rt Hon John


Maude, Hon Francis
Wall, Sir Patrick


Mayhew, Sir Patrick
Waller, Gary


Mellor, David
Ward, John


Merchant, Piers
Wardle, C. (Bexhill)


Meyer, Sir Anthony
Watts, John


Mills, Iain (Meriden)
Wells, Bowen (Hertford)


Mills, Sir Peter (West Devon)
Wells, Sir John (Maidstone)


Morris, M. (N'hampton S)
Wheeler, John


Morrison, Hon C. (Devizes)
Whitfield, John


Morrison, Hon P. (Chester)
Whitney, Raymond


Moynihan, Hon C.
Wiggin, Jerry






Wilkinson, John
Young, Sir George (Acton)


Winterton, Mrs Ann
Younger, Rt Hon George


Winterton, Nicholas



Wolfson, Mark
Tellers for the Noes:


Wood, Timothy
Mr. Archie Hamilton and


Yeo, Tim
Mr. Gerald Malone.

Question accordingly negatived.

Mr. Norman Lamont: I beg to move amendment No. 49A, in page 120, line 16, after 'income tax', insert `, corporation tax'.
This is a technical amendment which is necessary if the Government should decide to allow dividends from personal equity plan shares to be paid gross. This point has arisen from the proposal that such dividends can be rolled up tax free in the plan. The original intention was that dividends should be subject to the normal advance corporation tax rules, and that plan managers would reclaim the tax credits from the Revenue in the normal way.
Some potential plan managers have argued that this could increase the costs of administration and, therefore, the cost of personal equity plans to investors. It has been claimed that that problem could be solved by allowing companies to pay dividends gross in those circumstances. At present we are considering that in consultation with the various interested parties which would be affected by the procedure, but we are not yet able to make an announcement.
Therefore, we are moving this amendment in case we decide in due course that allowing payment of dividends gross would be the right course. The amendment enables the regulations to include provision for the purpose of the administration of corporation tax because we would be changing a detailed aspect of the ACT rules. If the Government decide against gross payments, the amendment would not be needed. Schedule 8 enables the Treasury to make regulations setting out the detailed rules of the scheme. The amendment enables the regulations to cover the ACT provisions for dividends and the gross or net point.
I stress to the House that, although we are taking this power, no decision has been made. We felt it right to make the amendment at this stage because we want the scheme to be launched on 1 January. We are considering this and consulting on it.

Mr. Terry Davis: Before the Minister sits down, can he give us an assurance that whichever course the Government follow it will not make any difference to the cost to the Revenue, and that it is simply a matter of administration?

Mr. Lamont: That is right. Amendment agreed to.

New Clause 2

VALUE-ADDED TAX—PENALTIES

'In section 15 of the Finance Act 1985 (value-added tax: failure to notify liability for registration) after subsection (4) here shall be added the following subsection:
(4A) Any penalty imposed by this section may be reduced to such lesser amount as appears to the Commissioners or, on appeal, to a value-added tax tribunal to be just and reasonable in all the circumstances of the case.'.—[Mr. Blair.]

Brought up, and read the First time.

Mr. Tony Blair: I beg to move, That the clause be read a Second time.
New clause 2 is of major importance to small traders. It is widely supported by groups representing the self-employed and small business men and it will be a crucial test of whether the Government's proclamations about the worth of small businesses are rooted in propaganda or practice.
The Keith committee, which reported in 1983, effectively recommended that value added tax offences should be decriminalised but that a system of automatic penalties should he brought into being. The sanction of the criminal law was to be taken away, but there were to be automatic penalties, in order to speed up the process of bringing to justice those in default of VAT.
5 pm
It was pointed out in volume 2, chapter 20 of the report that the Inland Revenue had the power of mitigation in respect of income tax offences and that that power was useful as a bargaining counter and in order to avoid hardship. In chapter 18, the Keith committee recommended extending that power of mitigation to VAT offences and penalties. The Keith committee—the body that gave rise to the provisions in last year's Finance Act in relation to VAT — recommended that there be a power of mitigation for all VAT penalties, including the new offence of civil fraud, in which case the committee recommended the power to mitigate down to 50 per cent. of the penalty.
The Government rejected the view of the Keith committee and rejected a new clause tabled by Labour last year. At present, therefore, there is no mitigation in the case of VAT offences and someone who is in breach of the VAT regulations can escape penalty only if he can show a defence of reasonable excuse. Only in those circumstances can he escape the full rigour of the law. The effect is, for example, that someone who deliberately fails to register for VAT is treated in exactly the same way as someone who innocently fails to register.
The new clause is a very modest proposal. It would allow the power of mitigation, but only on late registrations for VAT, where someone's turnover exceeds the requisite level for VAT but he fails to register in time. That power of mitigation would be given both to the commissioners for Customs and Excise and to the VAT tribunal.
The need for action is both urgent and easily demonstrable.

Mr. Douglas Hogg: Am I right in thinking that the penalty imposed for a default is a fixed penalty, fixed either by statute or by statutory instrument, and the commissioners or the tribunal have no power to impose a different penalty?

Mr. Blair: There is a fixed penalty referable to 30 per cent. of the amount of VAT in, say, the quarter in which the person should have registered. The penalty is fixed in that sense by reference to a percentage of the amount of tax due. At present there is no power to abate that in circumstances in which the commissioners or the tribunal might think it reasonable to do so. In a number of cases that have appeared before it, the VAT tribunal has drawn attention to the substantial injustice to small traders that arises from an absence of a power of mitigation.
The Rhodes case came before the VAT tribunal on 31 March 1986. In that case Lord Grantchester, the president


of the tribunal, said in express terms that he regretted the absence of any power of mitigation. That case precisely illustrates the problems faced by small traders because of the absence of the power of mitigation. A small trader started a debt collection agency. In the year to 31 March 1985 the amount of turnover was well below the registration limit for VAT. In the following quarter the turnover exceeded £6,500, the level above which one should register for VAT. The trader did not know that she had to register her agency when that limit was exceeded. She found out only during a conversation with her accountant, a quarter later. As soon as she told the accountant what the turnover was, he told her to apply for registration. She did so immediately, received a form from Customs and Excise and replied by return. She then issued back invoices to all the customers with reference to the quarter during which she should have registered for VAT, so ensuring that no tax was lost to Customs and Excise.
The VAT tribunal accepted that she had behaved entirely innocently. There had been no loss to Customs and Excise and, indeed, the trader herself had volunteered the information to Customs and Excise that enabled the penalty to be levied. In his judgment, Lord Grantchester said that he had to dismiss the appeal because the trader's innocence did not amount to a reasonable excuse in law and so she had no defence for her failure to register in time. However, he continued:
I dismiss this appeal. I do so with regret. Had there been criminal proceedings requiring the imposition of a fine, I would have taken full account of the mitigating circumstances. Little or no tax has been lost and all books and documents have been adjusted retrospectively so that for practical purposes, they now record what they would have recorded if the Appellant had duly complied with the relevant requirements. But neither the Commissioners nor this Tribunal has been entrusted with such a power to mitigate a fixed penalty.
In successive cases, other chairmen of VAT tribunals have made the same point. No fewer than three VAT tribunal chairmen, other than the president of the VAT tribunal, have drawn attention to the injustice that has occurred.
These traders are all people who run very small businesses. They are usually self-employed. A French polisher may be involved, or a small furniture business. In the last couple of weeks, the case of Mr. Pearson has been decided. Mr. Pearson is a decorator who failed to register for VAT in time. The chairman of the VAT tribunal, having said that again he could not say that there was a defence, because ignorance of the law is no defence, then said:
Since I have no power to mitigate the penalty, I did not explore matters which went solely to mitigation. It was apparent that there were many such matters, in particular the transparent honesty of the Appellant, his (and his accountant's) prompt and full disclosure of the facts to the Commissioners and, subject to clearance of the Appellant's cheque, the fact that no tax has been lost to the Commissioners.
I understand that many more cases are pending before the VAT tribunal. It is clear that the absence of any power of mitigation is causing substantial injustice. All the cases before the VAT tribunal have features in common. First, it is accepted that all the people acted in good faith and honesty. Secondly, their only fault was ignorance of the law. Thirdly, there has been no loss to Customs and Excise, and fourthly, and perhaps most importantly, the people involved are all small traders in a very small way of business.
It is generally accepted in the House that there is, and will continue to be, a growth in the number of small businesses and self-employed people. In my own constituency, many people have used redundancy money from their factories to start up their own businesses. Such people are often not aware of all the intricacies of form-filling, VAT and so on and they can get into difficulties. The absence of any power for the VAT commissioners or the tribunal to mitigate penalties is a substantial block on the establishment of new businesses.
The Government have put forward only two arguments why such a power of mitigation should not be accepted. First, the Government say that there has been a considerable increase in the speed of registration since the system of automatic penalties was introduced. In other words, there has been a diminution in the amount of late registrations.
I accept that that is the case and I welcome it. But, with great respect, there has been a speeding up of registrations for VAT because of the introduction of automatic penalties. It has nothing to do with the absence of the power of mitigation. I can see no logical or practical reason why the absence of a power of mitigation should speed up VAT registrations. Indeed, many of the cases before the VAT tribunal involve people who have been ignorant of the fact that they have to register for VAT. So automatic penalties were not a factor governing whether they registered.
The second and perhaps more surprising argument that was put forward in Committee in answer to the clause moved by the hon. Member for Slough (Mr. Watts) was that a power of mitigation would increase the number of civil servants that were needed to deal with mitigation. That is a classic example of how, as so often, the Government misunderstand the nature of the problems of bureaucracy. It is not civil servants who cause problems of bureaucracy but unnecessary rules of civil servants doing work with no useful purpose. Civil servants properly used, for example, assisting small businesses in setting up and overcoming their problems, are a positive bonus to small businesses and should not be regarded as some obstruction.
The Financial Secretary should consider the new clause, from the point of view of cutting not the costs of the Civil Service, but the burdens on small businesses. I use the words "cutting the burdens" because we have heard a lot from the Government about how they want to lift the burdens on small businesses. They have published two White Papers in the past two years, one called "Lifting the Burdens" and one called "Building Businesses — Not Barriers".
The Government introduced legislation on small businesses because a Department of Trade and Industry survey said that red tape was a problem, and the single most important item of red tape to which small businesses referred was value added tax. There was huge concern among small traders about the injustice of automatic penalties with no power of mitigation.
I have been through the White Paper "Building Businesses—Not Barriers" and as a piece of second-rate propaganda it takes some beating. When one looks at the Government's proposals on value added tax, most are elementary, such as allowing traders to make monthly rather than three-monthly accounts. I do not know how that is of great assistance to the small trader, but it is put forward as a great proposal by the Government.
Hon Members will find it amusing that the Government also include as one of the great steps that they have taken for small businesses the fact that they have revised guidance on the treatment of motoring costs after full consultation with business. A naive person reading those lines would think that the Government have helped to simplify the problems of VAT on fuel for motorists, but, as we learnt in Committee, what has actually happened is that the Government have introduced a system of standard computations of VAT on fuel which has saved the Government about £50 million. The notion that sucking £50 million out of the ordinary trader and motorist is some great bonus to small businesses is laughable. The truth is that when the Government are presented with a small but practical instance of how they can help small traders such as is suggested in new clause 2, they do not seem to be interested.
New clause 2 is a test for the Government. It has widespread support and it is difficult to see what coherent arguments there are against it. It is supported by those who specialise in value added tax work. It has been tacitly recommended by the tribunal chairmen who have to administer the system and it is widely supported by small businesses and the self-employed.
The test for the Government is whether they are more interested in headlines for themselves than in help for the small businesses, in publishing White Papers that are long on promises and short on practice, or in doing something that is really worthwhile for Britain's self-employed and small businesses. New clause 2 is such a clause and I recommend it to the House.

Mr. Douglas Hogg: I shall not speak for long because I am looking forward to hearing my right hon. Friend the Financial Secretary's reasons for not accepting the new clause. Looking at it in general terms, I think that the new clause is good and that it requires support.
As a general principle I have always been against fixed penalties. I have also been against minimum penalties. Indeed, that is the view that the Government have adopted in the criminal law ever since I have been in the House. On various occasions some of my hon. Friends have called for minimum penalties for this or that offence under the criminal law and the Government have always resisted, in my view rightly. The same general principle applies to fixed penalties.
5.15 pm
All penalties — whether minimum penalties, fixed penalties or penalties of any kind — must have some regard to the degree of culpability involved. Failure of registration in VAT cases may be a deliberate act of fraud. That is an extreme degree of culpability. On the other hand, failure to register might come about from a much smaller degree of culpability— for example, illness, the destruction of documents or ignorance. That is another and quite different degree of culpability.
It is wrong in principle that a penalty should be imposed that does not reflect the degree of culpability involved on the part of the person who has offended. Therefore, as a matter of general principle, I am highly sympathetic to new clause 2.
I am aware that the Government say that fixed penalties have necessarily resulted in an increase in the number of registrations. I have two comments to make on

that. First, I suspect that the hon. Member for Sedgefield (Mr. Blair) is right in his explanation for the increase in the number of registrations, but there is another point, too. There is always a natural tension between the desire on the part of the Executive to do those things that are convenient to it, on the one hand, and the desire of the legislature to ensure natural justice, on the other. If I hear that argument advanced by my right hon. Friend the Financial Secretary today — I fancy that I shall, although he will cloak it in his usual eloquent and charming manner—I must tell him that I am in favour of natural justice, not the Executive.
Having made those few remarks, I look forward to hearing my right hon. Friend tell us why we should not support new clause 2.

Mr. David Penhaligon: I echo what the hon. Member for Grantham (Mr. Hogg) has said. There is no logic in having a mitigation procedure for income tax but not for value added tax. One is aware of income tax procedures from one's constituency work. I have occasionally helped a constituent and been surprised at the outcome. At the end of the day a constituent often seems to have been rather well treated. In such circumstances one tends to claim some credit for such things.
A system of mitigation does exist and is operated in such circumstances. Therefore, I do not see why the powers of discretion and intelligent analysis of the background cannot be given to somebody within the area dealt with by the new clause. It is a power that cannot be unduly abused. If the Minister believes that it can be used as an excuse for putting off the payment of the tax even further, no doubt his Department, with its ingenuity, will find some way to deal with that.
The law, as it currently stands, says that there is never a harsh word within the worlds of justice, right and reason. The Government should give serious consideration to the new clause or, if an opportunity exists, at least to introduce something that approximates closely to it.

Sir Kenneth Lewis: When I first came to the House, I was told—I suppose correctly — by the Conservative Whips that it was always dangerous to listen to arguments in debate. One was supposed just to vote. To my great surprise, I discovered myself listening to the debate and, therefore, listening to the arguments of the hon. Member for Sedgefield (Mr. Blair) and of my hon. Friend the Member for Grantham (Mr. Hogg). I have been convinced by the arguments that the Government must be wrong if they do not accept new clause 2.
For some years, we have been saying, first, that there will be a big expansion of new businesses, which will be the Government's salvation and will do us much good at the geneal election because it will provide jobs; secondly, that we should do everything we can to support new businesses in every way. We have produced various documents, as my hon. Friend the Member for Grantham and the hon. Member for Sedgefield have mentioned. We wanted to get off the backs of small businesses. We know that our constituents have problems with VAT from time to time. VAT must be collected and no one wants to make it easy for people to get out of paying it. I am not on the side of those who want to try to get round paying the tax.
We have a tribunal procedure. Presumably the merit of the tribunal is that it is flexible. If it is to make decisions


on the basis of hard lines—where it does not get the chance to mitigate —it will not have the opportunity to deal with cases that may be different. If it must simply take a hard line, because that is what the Act says—the idea of the tribunal is to help businesses and to help the Government to get their proper tax income—it will be put into a difficult position and will not be able to do its job properly.
My right hon. Friend the Financial Secretary to the Treasury should consider that and concede the new clause, or at least propose one in its place, for two reasons. First, it will help the tribunal to provide justice. Secondly, it will help small businesses, which may have made errors and which may have sought to put those errors right, when they come to the tribunal. The tribunal will be able to recognise that fact and deal with those businesses and business men differently from those who have skived and got round the VAT regulations.
If we wish to help small businesses, we must be seen to help them. The Treasury has an opportunity to do that today. I hope that it will take that opportunity, because it is within the guidelines of the Government's policy. If it does not take that opportunity, it will lead people to say, "What is all this talk about? When a Minister gets the chance to turn talk into action, he does not do it."

Mr. Harry Cohen: I do not wish to repeat the excellent points that have already been made. On the point of small businesses being affected and the Government's claims, I would point out that there have been record bankruptcies of small businesses under this Government. The imposition and high increase of VAT has been a factor in that.
A letter from the Minister of State, Treasury went out to hon. Members only this week. In effect, it said "You will have complaints about VAT. Here is the answer.- It is a complicated letter which deals with many complicated issues. Yet here we are penalising people because they honestly fall foul of the law. It might often be a matter of ignorance. Tribunal officials acknowledge that the mistakes are often innocent mistakes, yet people are penalised for them. The letter from the Minister of State is a case for the clause being accepted. As has been stated, there should be the opportunity for mitigating circumstances to be taken into account by the tribunal or the commissioners where the circumstances are just and reasonable. That is what is contained in the amendment.
The tribunal must also take into account the hardship that small businesses face. I began by mentioning the record number of bankruptcies. Some small businesses are close to bankruptcy, and the penalties might tilt them over the edge, as several hundreds of pounds can be involved in each case.
I endorse and repeat the comments made by my hon. Friend the Member for Sedgefield and by Conservative Members. In the interests of natural justice, the Government should accept the new clause.

Mr. Norman Lamont: This subject was debated several times in Standing Committee and at the Report stage of the Finance Bill 1985, and again in Committee this year. The hon. Member for Sedgefield (Mr. Blair) reminded the House that the Keith committee on the enforcement powers of the Revenue Departments, which was set up by my right hon. and learned Friend, the Secretary of State for Foreign and Commonwealth Affairs when he was

Chancellor, reported on VAT in early 1983. The present position is based on the recommendations of the Keith committee, and its conclusions, which were generally in favour, after examining the subject, of fixing penalties for specific defaults. That is the position now and that is how we arrived at the decision to decriminalise offences.
As the hon. Member for Sedgefield recalled, the Government held a consultation exercise on the Keith committee's recommendations. In November 1984, we issued a consultation document which explained our intention to legislate in 1985. We put forward detailed clauses for comment.
The Keith committee wanted to balance the proposed strengthening of some of the powers of the Customs and Excise with the decriminalisation of most VAT offences and other forms of increased protection for the taxpayer. In preparing the 1984 consultation document, and between the consultation exercise and the publication of the 1985 Finance Bill, we made some important changes to the Keith proposals in favour of the taxpayer, including perhaps the most important change, the introduction of the statutory defence of reasonable excuse, which had not been generally recommended by Keith. The Finance Act 1985 was, therefore, a carefully balanced package which was introduced after full consultation with taxpayers and their representatives.
In its balanced approach, the Keith committee recognised that two particular problems concerning VAT for the Government were late payment and inaccurate accounting for the tax. The two best-known examples of these are that the average amount of VAT outstanding at any one time is about £1,200 million and the net underdeclarations of VAT found by Customs and Excise officials on control visits to business premises amounted to almost £500 million in 1985–86. Customs and Excise needed to have effective powers to encourage more timely and accurate compliance on these and other important aspects of the tax. The Keith committee therefore proposed a regime of surcharge, interest and civil penalties specifically for that purpose. Today we are discussing the civil penalties charged under section 15 of the Finance Act 1985 and especially the penalty on belated notification of liability to register for VAT.
Consistently with the Keith committee's other compliance proposals, the belated registration penalty is dependent, not on subjective factors, but on an objective test as to whether the registration is late. There is a right to appeal to the VAT tribunals on grounds of reasonable excuse or against the liability to register, or if Customs and Excise appears to have made an error in its calculation of the penalty assessment. Beyond that the penalty is fixed at the rate of 30 per cent. of the tax liability for the period by which the registration is late. There is no provision for mitigation.
5.30 pm
The hon. Member for Sedgefield referred to Keith's views on mitigation. It is true that Keith recommended that Customs and Excise should have the general power to mitigate penalties, but he also said that the use of that power should be restricted to exceptional cases. Keith had proposed that mitigation should be limited to exceptional cases of financial hardship, injustice or difficult points of tax liability. The last item on that list is fully covered by "reasonable excuse". For the other two, as my right hon.


Friend explained last year, Customs and Excise already have the power, subject to the supervision of the Public Accounts Committee and the Comptroller and Auditor General, to remit tax extra-statutorily in wholly exceptional cases on grounds of equity or compassion. It is the Government's view that those powers should be adequate similarly to cover penalties, interest and surcharge in such exceptional circumstances.
The hon. Member for Sedgefield has argued that there should be a power to reduce the penalty in particular circumstances to recognise the different weights of offence, including the question of the taxpayers' co-operation with the Customs and Excise investigation. I can assure him that any liability to late registration penalty — and, indeed, most of the other civil penalties—will be decided by simple objective tests concerned with the lateness of the registration. It follows that the quicker the taxpayer cooperates with Customs and Excise and discloses his late registration, the less will be the turnover that he will have accumulated while unregistered. The hon. Member for Sedgefield may not have said this today, but he will forgive me if I have been reading in Hansard some of the speeches that he made on other occasions. I observe that the hon. Gentleman nods. I am sure that he thinks that it is not a very good argument—indeed, I agree with him in that—but he will forgive me for having knocked down the argument that he put forward.

Mr. Douglas Hogg: In almost every penalty that I can think of within the criminal or civil law, the authority that has the power to impose the penalty has the power to vary a penalty in accordance with the degree of culpability involved. For the life of me, I cannot see why that general principle should not apply to late registration.

Mr. Lamont: My hon. Friend has made his position very clear on this. That is the view that he has taken, and he says that there should be no exception to that principle. This departure from that principle was fully debated and paraded with the Keith recommendations. Although my hon. Friend does not like the situation, it should not be a novelty to him. It has been in position since the recommendations of Keith, and it was because of the need to achieve greater compliance that the regime was adopted.
As my hon. Friend may know, I pick up this point simply because the hon. Member for Truro (Mr. Penhaligon) referred to the difference between the treatment of VAT and the treatment of income tax. Keith is being implemented in stages. There are other parts of Keith that the Government are still considering and that will be implemented this year. The question of the Keith recommendations on income tax is being examined by the Government. The implementation of Keith is happening by stages.

Sir Kenneth Lewis: Time has moved on since then. We do not stick to a line if a position is reached where we think that modification might be an advantage. It is some time now since Keith. We have decided as a Government that we are going to be as helpful as we can to small businesses. Surely the Government can decide that, although they took a line at the time which they say was effective, they do not now need to stick to that line because time has moved on, and they can give the tribunal the flexibility that it says it would like.

Mr. Lamont: I note what my hon. Friend says, but not very much time has moved on. I shall be coming to the question of a review of these procedures later in my remarks, if my hon. Friend will bear with me.
I certainly agree that the effects would be limited if the power of mitigation was limited to section 15 penalties alone, as proposed in the new clause. I am not sure whether the hon. Member for Sedgefield would go further and would want to see mitigation much more widely. I ask the House to remember that there are two sides to the question of non-compliance with VAT-registration requirements. We have heard about certain cases in which penalties for late registration have been imposed. The hon. Gentleman may care to reflect that, while these businesses remained unregistered, many of their commercial competitors were already registered and having to account for VAT. We receive many complaints, particularly from the building and catering industries, about the problems that VAT-registered traders can face in competing for business with unregistered competitors. There is a great deal of pressure from the business community for compliance and fair competition. Non-compliance is not fair competition. That has to be borne in mind.

Mr. Blair: Nobody is suggesting that there should not be compliance with VAT regulations— of course there should be. The situations with which we are dealing are those in which there has been an innocent non-compliance. It should always be borne in mind that the power of mitigation depends precisely on the VAT tribunal commissioners thinking it right to exercise it.

Mr. Lamont: I agree with what the hon. Gentleman was saying, and I was not in any way suggesting that he felt otherwise. The question is whether effective compliance can be achieved if we abandon the method that Keith concluded was necessary. Keith recommended mitigation in a very prescribed circumstance. The Government came to the conclusion that was not necessary after giving effect to the other alteration involving "reasonable excuse" that the Minister of State announced in Committee last year.
We have had now almost a full year's experience in the operation of belated registration penalties. In the period from Royal Assent last year to 30 June this year there were about 172,000 new registrations for VAT. Belated registration penalties under section 15 have been imposed in about 3,700 cases, a rate of just over 2 per cent. of all new registrations in the period. Customs and Excise has accepted pleas of reasonable excuse for late registration in a further 187 cases.
That brings me to the purpose of the new system, which sometimes seems to be overlooked. The purpose is not, of course, to see how many penalties can be imposed but to improve compliance with the law. Although my hon. Friend the Member for Grantham (Mr. Hogg) was sceptical about it, Customs and Excise says that it has detected a marked improvement in compliance during the last year. There is no doubt that many potential taxpayers and, perhaps more importantly, their professional advisers are increasingly realising that timely compliance with the registration requirements is important. It is by the yardstick of improvement in compliance that the penalty system must be ultimately judged.
My hon. Friends the Members for Grantham and for Stamford and Spalding (Sir K. Lewis) said that sufficient time had elapsed and that the time had come for


modification. When my right hon. Friend the Member for Brentford and Isleworth (Mr. Hayhoe) was Minister of State last year he gave an undertaking that the new penalty system would be carefully monitored. That reassurance was reiterated in the White Paper. Indeed, in paragraph 6.5 there is a specific commitment that
the system as a whole, including the operation of penalties and of reasonable excuse, will be reviewed by Ministers, before the 1988 budget, after a full year's practical experience.
I repeat that the review will be after a full year's practical experience, because we wish also to examine the effects of the surcharge that is to be applied in the case of persistent underpayment as from 1 October 1986. A single review covering both phases is justifiable, since a commitment has been given that both of these matters, taken together, will he reviewed.

Mr. Douglas Hogg: Will my right hon. Friend confirm that the review will extend not only to the mechanics but to the justice of what is being done?

Mr. Lamont: I am sure that that will be very carefully considered. We shall pay careful attention to all the representations.
We stand by that commitment, which offers safeguards for the long-term interests of the taxpayer. In the meantime, the taxpayer is benefiting substantially from the reasonable excuse provisions that were introduced, even though they had not been generally recommended by Keith.

Sir Kenneth Lewis: I believe that 136 out of 3,000 appeals were allowed under the reasonable excuse provisions. That is not a very high figure. Will my right hon. Friend try to persuade the commissioners to be more realistic in placing reasonable excuse at the forefront of their considerations?

Mr. Lamont: About 5 per cent. of potential cases were allowed, but what has been said in this debate will certainly be noted.
The pursuit of the alternative of mitigation is not right. Mitigation would serve only to erode the valuable tax compliance benefits of the package and would open the gates to appeals. We should then lose many of the benefits that we arc now beginning to gain.
I understand the unease and the points that have been made on both sides of the House. I assure my hon. Friends the Members for Grantham and for Stamford and Spalding that the commitment to a review before the 1988 Budget stands. Therefore, I cannot advise my hon. Friends to accept the Opposition's new clause.

Mr. Blair: The Financial Secretary to the Treasury says that there has been much greater compliance with VAT registration since the introduction of the Keith committee's recommendations. With respect, I do not understand how the absence of the power of mitigation can be said to have affected compliance under the VAT regulations. The point made by the hon. Member for Grantham (Mr. Hogg) is fundamental, but I hope he will forgive me if I do not pursue it.
I realise that the existence of automatic penalties means that there has been an increase in compliance, but the new clause does not touch the automatic penalties system. That remains in being. Therefore, the Keith committee's fundamental proposal will be untouched by the new clause. It is ludicrous to suggest that the existence of a

power of mitigation will encourage people not to comply with the original law, yet that is the effect of what the Financial Secretary has said.
It is not the case that we have no experience upon which to form a judgment. During the last few months there have been cases before the value added tax tribunal in which not just the president but the president and three different chairmen have specifically pointed to the injustice of the absence of a power to mitigate.
As the hon. Member for Stamford and Spalding (Sir. K. Lewis) said, we have the benefit of experience. We know that there is an injustice here. That injustice is recognised not merely by traders but by those who practise in the value added tax area. It is not good enough to ask us to await the outcome of a review that is to take place in a few months' time which will cover a whole range of different matters. An injustice exists now and we have been provided with an opportunity to remedy it.
If we really care about small businesses and if what we are saying is not mere rhetoric but has a touch of reality about it, those who go through the Lobby and vote for the new clause will be pinning their colours to the mast of small businesses, while those who do not will forfeit their right to be called the friends of small businesses.

Question put, That the clause be read a Second time:—

The House divided: Ayes 166, Noes 225.

Division No. 247]
[5.45 pm


AYES


Adams, Allen (Paisley N)
Davis, Terry (B ham, H'ge H'I)


Alton, David
Deakins, Eric


Archer, Rt Hon Peter
Dewar, Donald


Ashdown, Paddy
Dixon, Donald


Ashley, Rt Hon Jack
Douglas, Dick


Ashton, Joe
Duffy, A. E. P.


Atkinson, N. (Tottenham)
Dunwoody, Hon Mrs G.


Banks, Tony (Newham NW)
Eadie, Alex


Barnett, Guy
Eastham, Ken


Beckett, Mrs Margaret
Edwards, Bob (W'h'mpt'n SE)


Beith, A. J.
Evans, John (St. Helens N)


Bell, Stuart
Ewing, Harry


Bennett, A. (Dent'n &amp; Red'sh)
Fatchett, Derek


Bidwell, Sydney
Faulds, Andrew


Blair, Anthony
Field, Frank (Birkenhead)


Bray, Dr Jeremy
Fields, T. (L'pool Broad Gn)


Brown, Gordon (D'f'mline E)
Fisher, Mark


Brown, Hugh D. (Provan)
Flannery, Martin


Brown, N. (N'c'tle-u-Tyne E)
Foot. Rt Hon Michael


Brown, R. (N'c'tle-u-Tyne N)
Forrester, John


Bruce, Malcolm
Foster, Derek


Buchan, Norman
Foulkes, George


Callaghan, Jim (Heyw'd &amp; M)
Fraser, J. (Norwood)


Campbell-Savours, Dale
Freud, Clement


Canavan, Dennis
George, Bruce


Carlile, Alexander (Montg'y)
Gilbert, Rt Hon Dr John


Carter-Jones, Lewis
Gould, Bryan


Cartwright, John
Gourlay, Harry


Clark, Dr David (S Shields)
Hamilton, W. W. (Fife Central)


Clarke, Thomas
Hancock, Michael


Clay, Robert
Hardy, Peter


Clelland, David Gordon
Harrison, Rt Hon Walter


Clwyd, Mrs Ann
Haynes, Frank


Cocks, Rt Hon M. (Bristol S)
Heffer, Eric S.


Cohen, Harry
Hogg, Hon Douglas (Gr'th'm)


Coleman, Donald
Hogg, N, (C'nauld &amp; Kilsyth)


Cook, Frank (Stockton North)
Home Robertson, John


Cook, Robin F. (Livingston)
Hoyle, Douglas


Corbett, Robin
Hughes, Dr Mark (Durham)


Corbyn, Jeremy
Hughes, Roy (Newport East)


Craigen, J. M.
Hughes, Sean (Knowsley S)


Cunningham, Dr John
Janner, Hon Greville


Dalyell, Tam
John, Brynmor


Davies, Ronald (Caerphilly)
Johnston, Sir Russell






Jones, Barry (Alyn &amp; Deeside)
Richardson, Ms Jo


Kaufman, Rt Hon Gerald
Roberts, Ernest (Hackney N)


Kennedy, Charles
Robertson, George


Kilroy-Silk, Robert
Robinson, G. (Coventry NW)


Kirkwood, Archy
Rogers, Allan


Lambie, David
Rooker, J. W.


Leighton, Ronald
Ross, Ernest (Dundee W)


Lewis, Sir Kenneth (Stamf'd)
Rowlands, Ted


Lewis, Ron (Carlisle)
Ryman, John


Lewis, Terence (Worsley)
Sheerman, Barry


Livsey, Richard
Sheldon, Rt Hon R.


Lloyd, Tony (Stretford)
Shore, Rt Hon Peter


McCartney, Hugh
Short, Ms Clare (Ladywood)


McDonald, Dr Oonagh
Short, Mrs R.(W'hampt'n NE)


McGuire, Michael
Silkin, Rt Hon J.


McKay, Allen (Penistone)
Skinner, Dennis


McKelvey, William
Smith, Rt Hon J. (M'ds E)


MacKenzie, Rt Hon Gregor
Spearing, Nigel


McTaggart, Robert
Steel, Rt Hon David


McWilliam, John
Stewart, Rt Hon D. (W Isles)


Madden, Max
Strang, Gavin


Marek, Dr John
Straw, Jack


Maxton, John
Thomas, Dafydd (Merioneth)


Meadowcroft, Michael
Thomas, Dr R. (Carmarthen)


Michie, William
Thompson, J. (Wansbeck)


Millan, Rt Hon Bruce
Tinn, James


Miller, Dr M. S. (E Kilbride)
Torney, Tom


Mitchell, Austin (G't Grimsby)
Wainwright, R.


Morris, Rt Hon A. (W'shawe)
Wardell, Gareth (Gower)


O'Neill, Martin
Wareing, Robert


Orme, Rt Hon Stanley
Welsh, Michael


Park, George
Wigley, Dafydd


Parry, Robert
Williams, Rt Hon A.


Pavitt, Laurie
Wilson, Gordon


Pendry, Tom
Winnick, David


Penhaligon, David
Woodall, Alec


Pike, Peter
Wrigglesworth, Ian


Powell, Raymond (Ogmore)



Radice, Giles
Tellers for the Ayes


Randall, Stuart
Mr. James Hamilton and


Rees, Rt Hon M. (Leeds S)
Mr. Lawrence Cunliffe.


NOES


Adley, Robert
Dunn, Robert


Atkins, Rt Hon Sir H.
Durant, Tony


Banks, Robert (Harrogate)
Dykes, Hugh


Batiste, Spencer
Emery, Sir Peter


Beaumont-Dark, Anthony
Farr, Sir John


Bennett, Rt Hon Sir Frederic
Favell, Anthony


Best, Keith
Fenner, Mrs Peggy


Biggs-Davison, Sir John
Finsberg, Sir Geoffrey


Blackburn, John
Fookes, Miss Janet


Boscawen, Hon Robert
Forsyth, Michael (Stirling)


Bottomley, Mrs Virginia
Forth, Eric


Bowden, Gerald (Dulwich)
Fowler, Rt Hon Norman


Brandon-Bravo, Martin
Fox, Sir Marcus


Brown, M. (Brigg &amp; Cl'thpes)
Fraser, Peter (Angus East)


Bruinvels, Peter
Freeman, Roger


Bryan, Sir Paul
Galley, Roy


Buchanan-Smith, Rt Hon A.
Gardiner, George (Reigate)


Budgen, Nick
Gardner, Sir Edward (Fylde)


Burt, Alistair
Garel-Jones, Tristan


Butterfill, John
Gilmour, Rt Hon Sir Ian


Carlisle, John (Luton N)
Glyn, Dr Alan


Carlisle, Kenneth (Lincoln)
Gow, Ian


Carlisle, Rt Hon M. (W'ton S)
Gower, Sir Raymond


Carttiss, Michael
Greenway, Harry


Chope, Christopher
Gregory, Conal


Churchill, W. S.
Griffiths, Sir Eldon


Clark, Dr Michael (Rochford)
Griffiths, Peter (Portsm'th N)


Clegg, Sir Walter
Grylls, Michael


Cockeram, Eric
Hamilton, Hon A. (Epsom)


Colvin, Michael
Hampson, Dr Keith


Conway, Derek
Hanley, Jeremy


Coombs, Simon
Hannam, John


Cope, John
Hargreaves, Kenneth


Corrie, John
Harris, David


Critchley, Julian
Harvey, Robert


Currie, Mrs Edwina
Hawkins, C. (High Peak)


Douglas-Hamilton, Lord J.
Hawkins, Sir Paul (N'folk SW)





Hawksley, Warren
Pollock, Alexander


Hayes, J.
Portillo, Michael


Hayhoe, Rt Hon Barney
Powley, John


Hayward, Robert
Prentice, Rt Hon Reg


Heathcoat-Amory, David
Proctor, K. Harvey


Heddle, John
Raffan, Keith


Henderson, Barry
Renton, Tim


Hickmet, Richard
Rhodes James, Robert


Hicks, Robert
Rhys Williams, Sir Brandon


Higgins, Rt Hon Terence L.
Ridsdale, Sir Julian


Hind, Kenneth
Robinson, Mark (N'port W)


Hirst, Michael
Roe, Mrs Marion


Holland, Sir Philip (Gedling)
Rowe, Andrew


Hordern, Sir Peter
Ryder, Richard


Howard, Michael
Sackville, Hon Thomas


Howarth, Alan (Stratf'd-on-A)
Sainsbury, Hon Timothy


Howarth, Gerald (Cannock)
Sayeed, Jonathan


Howell, Ralph (Norfolk, N)
Shaw, Giles (Pudsey)


Hunt, David (Wirral W)
Shaw, Sir Michael (Scarb')


Hunter, Andrew
Shepherd, Colin (Hereford)


Irving, Charles
Silvester, Fred


Jackson, Robert
Sims, Roger


Jessel, Toby
Skeet, Sir Trevor


Johnson Smith, Sir Geoffrey
Smith, Tim (Beaconsfield)


Jones, Gwilym (Cardiff N)
Soames, Hon Nicholas


Jones, Robert (Herts W)
Speed, Keith


Kellett-Bowman, Mrs Elaine
Spencer, Derek


Kershaw, Sir Anthony
Spicer, Jim (Dorset W)


Key, Robert
Spicer, Michael (S Worcs)


Knight, Greg (Derby N)
Stanbrook, Ivor


Knight, Dame Jill (Edgbaston)
Stanley, Rt Hon John


Knowles, Michael
Steen, Anthony


Lamont, Rt Hon Norman
Stern, Michael


Latham, Michael
Stevens, Lewis (Nuneaton)


Lawler, Geoffrey
Stewart, Allan (Eastwood)


Lawrence, Ivan
Stewart, Andrew (Sherwood)


Leigh, Edward (Gainsbor'gh)
Sumberg, David


Lennox-Boyd, Hon Mark
Tapsell, Sir Peter


Lester, Jim
Tebbit, Rt Hon Norman


Lilley, Peter
Temple-Morris, Peter


Lloyd, Peter (Fareham)
Terlezki, Stefan


Lord, Michael
Thomas, Rt Hon Peter


MacGregor, Rt Hon John
Thompson, Donald (Calder V)


MacKay, Andrew (Berkshire)
Thompson, Patrick (N'ich N)


McLoughlin, Patrick
Thorne, Neil (Ilford S)


McNair-Wilson, M. (N'bury)
Thornton, Malcolm


Madel, David
Thurnham, Peter


Major, John
Townend, John (Bridlington)


Malins, Humfrey
Townsend, Cyril D. (B'heath)


Marland, Paul
Twinn, Dr Ian


Marlow, Antony
Vaughan, Sir Gerard


Marshall, Michael (Arundel)
Viggers, Peter


Mather, Carol
Wakeham, Rt Hon John


Mayhew, Sir Patrick
Walker, Bill (T'side N)


Merchant, Piers
Wall, Sir Patrick


Meyer, Sir Anthony
Waller, Gary


Mills, Iain (Meriden)
Ward, John


Mills, Sir Peter (West Devon)
Wardle, C. (Bexhill)


Moate, Roger
Watson, John


Morris, M. (N'hampton S)
Watts, John


Morrison, Hon C. (Devizes)
Wells, Bowen (Hertford)


Moynihan, Hon C.
Wells, Sir John (Maidstone)


Murphy, Christopher
Wheeler, John


Neale, Gerrard
Whitfield, John


Nelson, Anthony
Whitney, Raymond


Neubert, Michael
Wilkinson, John


Newton, Tony
Winterton, Mrs Ann


Nicholls, Patrick
Winterton, Nicholas


Norris, Steven
Wolfson, Mark


Onslow, Cranley
Wood, Timothy


Osborn, Sir John
Yeo, Tim


Ottaway, Richard
Young, Sir George (Acton)


Page, Sir John (Harrow W)
Younger, Rt Hon George


Page, Richard (Herts SW)



Patten, Christopher (Bath)
Tellers for the Noes:


Pattie, Geoffrey
Mr. Francis Maude and


Pawsey, James
Mr. Gerald Malone.


Percival, Rt Hon Sir Ian

Question accordingly negatived.

New Clause 4

CAPITAL ALLOWANCES—RELIEF FOR EXPENDITURE TO PROVIDE ACCESS FOR DISABLED WORKERS

`(1) If a person carrying on a trade or profession has on or after 1st August 1986 incurred expenditure on building works or equipment designed to facilitate access to his premises by disabled workers and an allowance or deduction in respect of the expenditure could not, apart from this section, be made in taxing the trade or profession or computing the profits or gains arising from it, Chapter I of Part III of the Finance Act 1971 shall apply as if the expenditure were capital expenditure incurred on the provision of plant or machinery for the purposes of the trade or profession, and as if the machinery or plant had, in consequence of his incurring the expenditure, belonged to him; and as if the disposal value of the plant or machinery were nil.
(2) This section shall be construed as if contained in Chapter I of Part Ill of the Finance Act 1971.
(3) In this section "disabled workers" means persons, being registered disabled under the Disabled Persons (Employment) Act 1944, who are engaged or employed to work on the premises in question, or who could he engaged or employed to work on the premises in question but for being disabled, and whose mobility is restricted by physical injury or infirmity.'.— [Mr. Blair.]

Brought up, and read the First time.

Mr. Blair: I beg to move, That the clause be read a Second time.
The clause will enable an employer to claim capital allowances for alterations to his premises or for the construction of premises designed to assist access to the workplace for disabled workers. The capital allowance given under the new clause would be 25 per cent. on a reducing balance basis. This clause is limited in scope, but it is extremely important for the rights of disabled people. It covers only access, but access is an important element in disabled people being able to obtain and retain employment. For example, it would cover the installation of wheel ramps, specially widened doors, grab rails and braille signs.
At present, capital allowance relief is given to an employer for plant and machinery. That covers everything. It could, for example, cover the installation of a lift for the use of disabled people. That is merely coincidental, because the relief is given for plant and machinery generally. Alternatively, an employer could claim an industrial buildings allowance, and that would give him some form of tax relief for the construction of a building. That simply coincides with general relief, but it may contain some element of help for disabled people. However, it does not cover, for example, shop or office units and it does not apply if an industrial building is already in use. The new clause would allow the employer to claim capital allowance relief if he was altering or constructing premises so that disabled people could gain access to them. We believe that it would be of significant benefit to disabled people.
6 pm
It is worth pointing to the items upon which employers already claim capital allowance relief. The chairman's company car is treated as an item of plant and machinery for which capital allowances are available. The chairman's cocktail cabinet, and the Wedgwood or Royal Doulton

teacups in his room can be treated as items for which capital allowances are available. Apparently, even the potted plants can be designated as plant and machinery and are thus eligible for capital allowance relief. If capital allowance relief can be claimed on all those things, why should specially constructed access for the disabled fall outside the scope of that tax relief? Grants of up to £6,000 are already available to provide access for the disabled, and grants can be claimed through the disablement advisory service. Thus, some help is already given to disabled people when it comes to obtaining access to their places of employment.
Perhaps I could point to the limitations on the grant system operated through the Manpower Services Commission. First, those grants are available only if access is being specially constructed in order to retain or recruit a specific person. In other words, a grant towards constructing access to the workplace can be obtained only if a specific person is targeted, either because the employer wants to employ him or because he wants to retain him. Thus, the employer has to have a person in mind before he can apply for the grant. If the grant is obtained, the works must be carried out before the person can gain access to the workplace.
Secondly, I should be grateful if the Financial Secretary could confirm that those disablement grants can be sanctioned up to a limit of only £500 at local level. I understand that for sums above that level there must be referral to headquarters, which requires at least three estimates of the work proposed before allowing the employer to carry it out.
There is a general feeling among disabled groups that there are significant bureaucratic obstructions to access to the workplace being provided. I understand from the figures that I have obtained from the MSC that, in the last year for which figures are available, only 165 such applications were granted. We therefore believe that a more general approach is necessary.
There is a twofold advantage to using capital allowances. First, an employer can change the work premises or construct access for the disabled without having to target a particular person. In other words, he could alter his premises, and the disabled person would then compete for a job within an environment of equality of opportunity. That is an important reason for seeing the capital allowance system as a useful complement to the grants that are already available through the MSC.
The second advantage may seem somewhat esoteric to my hon. Friends, but it is important. At present, the grant system operated through the MSC is advertised in a series of booklets put out by the MSC or by the Department of Employment. But there might be more of an incentive if accountants knew that capital allowance relief was available to employers if they wanted to take advantage of it. If an employer was thinking of altering his premises, the accountant might suggest that special access for the disabled could he included as plant and machinery. That employer would then create the premises that would enable a disabled person to compete for a job on equal terms with a person who does not suffer from any disability. There would also be an advantage in the byproduct for the customer.
It is worth noting the number of people who suffer from some disability. The 1983 household survey showed that about 19 per cent. of working people reckoned that they were limited in some way through disability. I understand


that the number of those registered disabled under the 1944 Act is well in excess of 400,000. That puts into perspective the 165 applications for special grants made through the MSC.
Some of my hon. Friends may raise the question of quotas, so I shall say only that it is extraordinary that there have been 10 prosecutions since 1944 for breaching statutory obligations in relation to the quota system. Since March 1979 there has not been a single prosecution for breach of the quota regulations. Therefore, one is entitled to say that we must not be complacent about the incentives given to disabled people.
Thanks in great measure to the activities of my hon. Friends, the profile of the disabled and public awareness of the problems that they face have been heightened. I make no apology for saying that this is the right time for this new clause. Today, Royal Assent has been given to the Disabled Persons (Services, Consultation and Representation) Bill, which was introduced by my hon. Friend the Member for Monklands, West (Mr. Clarke). There is no more fitting time to move this new clause. It is an earnest of our good intentions towards the disabled, and I have pleasure in commending it to the House.

Mr. Dafydd Wigley: I am pleased to support the new clause. If I had seen it early enough, I would have added my name to it. It represents a step in the right direction, although its scope within this Bill must of necessity be limited.
The question of developing policies to help to integrate disabled people into the workplace has been underlined over the years. It was highlighted in section 8(2)(a) of the Chronically Sick and Disabled Persons Act 1970, which the right hon. Member for Manchester, Wythenshawe (Mr. Morris) did so much work to promote. It was also highlighted in the Snowdon report on integrating the disabled. It is worth quoting the recommendations of the Snowdon working party. No. 20 says:
The premise on which our Sub-Committee's philosophy is based is that employment itself is crucial to the integration of disabled persons of employable age within the life of the community, and that such employment should, so far as is practicable, be as similar as possible to that of able-bodied people in respect of conditions of work, status and pay.
Recommendation No. 37 stated:
There is need to improve the access of places to work for disabled people. In some instances the provision of hostel accommodation is advocated—in others financial assistance to make it easier for the disabled people to move nearer to their place of work.
Obviously, the ability of disabled people to get to their places of work and to be taken on was a major factor in the working party's thinking. The report was published in 1976, yet we have made relatively little progress.
There have been changes in building regulations, and so on, but there is a general feeling that the time may be right to look to the carrot as well as to the whip of regulations and restrictive legislation. Whether the carrot consists of grants or tax incentives, it must be considered. The legislation that has been put on the statute book in recent years has largely dealt with existing factories, offices or shops, and has sought to ensure that new buildings provide access for disabled people.
However, we have not been able to attack in as meaningful a way as we should have the problem of existing buildings. As they represent 95 per cent. of all

construction, we must consider ways of improving access to them for disabled people. That may be one important way to help, although it is not the only way. If the allowances which the hon. Member for Sedgefield (Mr. Blair) referred to when moving the new clause arc available for the range of expenditures that he highlighted, both sides of the House would feel that the grants should be available to improve facilities for disabled people.
The point made by the hon. Member for Sedgefield about the need to get this right before individuals' specific problems are highlighted is most important. It is wrong that disabled people should be helped only when the problem arises. By definition, that makes disabled people abnormal. We should have met their needs before a question of non-discrimination or discrimination arose.
I have drawn the attention of the House previously to the slogan used in Sweden and I make no apologies for referring to it again. In Sweden they say that handicap is a relationship between a disabled person and his or her environment, be that the physical environment, social environment or the psychological environment. We may not be able to do much about a disability, but by tackling the physical environment in the context of the new clause we can do something to prevent that disability from becoming a handicap. We have an opportunity in the Bill to do something about this problem. There is a need for an attack on the problem in existing buildings, and I commend the new clause to the House.

Mr. Lewis Carter-Jones: I hope that the Financial Secretary to the Treasury will not be misled by his officials in this matter. Some of us have lived with this problem for 22 years. We are surprised when these matters are brought before us and the interpretation of these problems by officers and officials differs from our own. That is why it is important that we should accept the new clause. The Minister of State, Treasury, who handles VAT problems in the Treasury, can relate alarming cases where VAT has applied to appliances and building regulations in relation to disability. I pay tribute to the Financial Secretary's colleague for his efforts to undo the evil that has been done by officials misinterpreting the regulations in that respect. That is why the problem must be countered by a copper-bottomed new clause as part of the Bill.
I hope that the Financial Secretary will not turn down this new clause on the ground that it is unnecessary. That was the excuse used when we tried to get on to company records the provision that a statement by the directors must be contained in the annual report as to what they are doing on behalf of disabled people. The Financial Secretary is a kindly man and will think that my remarks are unnecessary. I can assure him on behalf of my hon. Friends and on behalf of his Conservative colleagues that the interpretation happens far too often to the disadvantage of the disabled.
I should like to define the nature of the problem for the benefit of the Financial Secretary. Unemployment among young people with handicap is twice that of their non-handicapped peers. The national child development study found that over a two-year period 10 times as many young handicapped people had been out of work for six months or more than had their non-handicapped fellows.
I am wearing the Rehab International tie. The symbol on the tie has become the symbol of disability in Britain. In truth, when Rehab International developed this symbol it was meant to be a symbol of access. Access is the most


important factor involved in obtaining a job. There is the main problem of access to premises and the problem of access to toilets. There is also a problem about providing training areas and training equipment.
The Financial Secretary to the Treasury may do his right hon. and learned Friend the Paymaster General a favour if he allows the new clause to be passed because it may relieve the pressure on the quota system for the employment of disabled people. That might indirectly help the Paymaster General to sustain the quota and so avoid attacks from both sides of the House because the 3 per cent. rule is not being implemented.
My hon. Friend the Member for Monklands, West (Mr Clarke) has asked me to apologise to the House for his absence. He had a great success today as the Royal Assent was given to his Bill. I gather that he has been asked to account for that in another place. I hope that the House will accept his profuse apologies. I would like to deal briefly with the problem of access for mentally handicapped people.
MENCAP has a scheme called the Pathway employment services. That accounts for a substantial number of new jobs for mentally and physically handicapped people. MENCAP argues that the new clause is absolutely essential for that purpose. Let me quote what Mary Holland of MENCAP said in a letter to me:
Physical barriers to employment for people with handicap can be overturned: social barriers created by ignorance and myth will take longer. The first step must be to ensure that people with disabilities are encouraged positively to take their place in the work force. Financial incentives will help employers to provide suitable working environments which will in turn ensure that we practise rather than preach the reality of finding work for disabled people.
6.15 pm
The new clause encapsulates the feelings of many of us about the opportunities of work for disabled people. The Government have contributed to that and the Council of Europe has produced a coherent policy for the rehabilitation of disabled people. Experts from this country and Northern Ireland have played a part in this.
MIND states that if we are to encourage employers and workers to help disabled people to enter employment and rehabilitation, we have
to encourage employers generally to facilitate the rehabilitation of disabled workers by making suitable work available to them, if necessary after making adaptations to machinery or equipment and by giving them the opportunity to return to suitable types of employment as soon as they are medically fit for work, although not necessarily fit enough to resume their former occupation.
I do not know what messages the Financial Secretary to the Treasury is receiving from elsewhere in the House. However, I hope that those messages do not encourage him to turn down the new clause. Many of us, as you are aware. Mr. Speaker, must try, with heavy hearts, to influence Ministers who mean well but who are told by their advisers that they cannot do something because it is not in the Act. The new clause offers the Financial Secretary the chance to get this provision in the Act.

Mr. Robert N. Wareing: I am sure that the new clause will be commended by all the organisations representing disabled people as a much needed clause to enable the 3 per cent. quota under the Disabled Persons (Employment) Act 1944 to be more readily achieved. At present, more than 65 per cent. of

firms in this country are outside of the law. They are not taking the 3 per cent. quota. Indeed, not one Government Department abides by the quota set in the 1944 Act.
One of the arguments often put forward by the Government when disabled people are discussed and efforts are being made to help them is that the term "disabled workers" needs to be defined. It is defined on this occasion. My hon. Friend the Member for Sedgefield (Mr. Blair) has said that there are 430,000 registered disabled, but there are more than 5·5 million who are either physically or mentally handicapped. At present, there is no incentive to register. Nothing is gained by registering. If the new clause were accepted and implemented, it would provide encouragement to register if nothing else.
There is a wide variety of housing grants available to the disabled but there is no comprehensive scheme available to the employers of the disabled, and that is what the new clause will provide. Capital grants of up to £6,000 are available for adaptions and special equipment. Unfortunately, the take-up has been abysmal. In answer to my right hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) on 9 February 1983, at column 392, it was revealed that there was no year between 1971–78 arid 1981–82 when the estimate of the capital grant that should be made available was equalled by the level of take-up. For example, £500,000 was allocated in the Estimates of 1977–78 and the take-up was only £11,040. Only 21 firms were involved. In 1981–82, there was a much reduced estimate by the Government of £150,000. However, only £71,469 was taken up by 93 firms. There are more than 93 firms within a mile of this building.
The sum that is allocated each year is underspent and the reasons are simple. There is a lack of knowledge, just as in our previous debate it was said that many of those who are taking redundancy pay and setting up their own small businesses are not au fait with the problems or difficulties that will confront them and with what will be available to them.
A company which wants to take on a worker will want to employ him or her as soon as possible, and it will need to ascertain what will be available to it if it decides to take on a disabled worker. If the firm is asked to make an application, it will have to supply estimates of the cost of any construction work or equipment that will be required if the disabled worker is to be taken on before it is informed of the size of the grant that will be made available. This process involves an inordinate amount of delay, and fairly often the job will be taken by someone else who is not disabled—that is discrimination against the disabled—or the firm will go out of business by the time that the grant is awarded.
The quota scheme can be made more effective without even changing the law. If the House were to accept the new clause and it were incorporated in the Bill, the law would be changed only slightly.
In 1976, the Snowdon working party on the integration of the disabled recommended the levying of a disablement employment tax, the revenue from which would go into a disablement employment fund. It was proposed that the fund should be used to compensate employers for the expenditure entailed in assisting disabled workers. It was a form of capital tax relief. The new clause is in the spirit of that recommendation of the Snowdon working party. It would provide real encouragement to employers not to discriminate against the disabled. Instead, it would


encourage employers to take them on. The clause would not incur any additional expenditure. If the Minister reads the answer that was given to my right hon. Friend the Member for Stoke-on-Trent, South, which appeared in Hansard some years ago, he will find that the grants are not taken up. There is plenty of leeway to enable the Government to provide the wherewithal to counteract any possible loss in tax as a result of the implementation of the new clause.
The new clause would encourage the disabled to register and would provide much needed statistics. We would know the number of handicapped people within the community. That statistic is needed for many vital purposes. For most firms the clause would involve only a once-and-for-all expenditure. That is because the capital tax relief would not accrue every year. The Government are always prating that we should widen and extend choice, and here is an opportunity for them to widen the choice of employment that is available to the disabled. The new clause would give employers the chance to show their good will towards the disabled community, which constitutes a sizable constituency. The Government are being given the opportunity to demonstrate their good will be accepting this proposal.

Mr. Cohen: This a sensible new clause and will facilitate access to employment for the disabled. The clause is well drafted. I understand that its wording follows quite closely the provisions on fire precaution expenditure in section 17 of the Finance Act 1974. It has sound antecedents, which should encourage the Government to adopt it.
The tax laws that relate to the disabled are a mess. If a lift is installed, the expenditure will probably qualify for a grant or allowance, but the provision of ramps and widened doors to permit wheelchair access will not. The cost of constructing a new factory that has design features to permit access to the disabled will qualify for grant, but alterations to an existing building will not.
It has already been said that perks often have little connection with the real interests and activities of a business. Two examples are the chairman's new Rolls-Royce and the managing director's cocktail cabinet. Such perks qualify for an allowance from the Revenue but the provision of access for disabled workers will not. That is a gross contradiction. Why should the chairman of a company enjoy tax relief on the purchase of a Rolls-Royce to facilitate his mobility when disabled workers do not get any relief of that sort? The managing director receives a cocktail cabinet, but many disabled workers will not be able to enter the place of work, let alone reach the room where the cocktail cabinet is sited.
The new clause is a sensible provision to counter the discrimination against disabled workers that stems from access problems. The recent survey of the National Child Development Council reveals that young people who are handicapped are 10 times more likely to be unemployed for six months or more than their counterparts who are handicapped. That is shocking. The Government should be doing much more directly to counter discrimination in employment against the disabled. At least the new clause would provide a small encouragement to employers and I hope that it will be accepted by the Government.

Mr. Norman Lamont: We have had an informed debate, not least because several of those who have spoken,

especially the hon. Members for Eccles (Mr. Carter-Jones), Caernarfon (Mr. Wigley) and Liverpool, West Derby (Mr. Wareing), take an extremely long-term and consistent interest in the subject. Their remarks today were interesting and informing. I appreciated the spirit in which the hon. Member for Sedgefield (Mr. Blair) moved his new clause. I certainly appreciate his motives for doing so, because obviously the question of access is of great importance to disabled people.
6.30 pm
The purpose of the new clause, as the hon. Member for Sedgefield outlined, is to give tax relief through the capital allowance system to employers who would not otherwise get relief for expenditure incurred on or after 1 August 1986 on building works or equipment designed to facilitate access to their premises by disabled employees.
The underlying question raised by the clause is, what is the best way to help and encourage provision and access for the disabled? Is it by grants, tax relief, or a combination of the two, bearing in mind the statutory obligation imposed on people in the construction of new buildings to which the hon. Member for Caernarfon referred? The Government believe that we should do so by both methods, but that the first line of assistance should be by grants and, after they have been taken into account, the normal tax rules should apply—that is to say, the rules for machinery and plant, industrial buildings, hotels, buildings in enterprise zones, and so on. Those allowances can help in certain ways.
I shall deal with the question of grants, to which the hon. Member for Sedgefield referred. The Manpower Services Commission can pay grants of up to a maximum of £6,000 to eligible employers, who are the great majority, who make essential adaptations to their premises or equipment to enable them to engage and retain specific disabled employees.
The hon. Gentleman referred to restrictions on the grants. As I understand it, those restrictions are there because until the nature of the specific disability is known it cannot be known what precise alterations are needed. As I understand it, that is the nature of the restrictions to which the hon. Gentleman referred.
I think that the hon. Gentleman referred to the bureaucracy in the MSC procedures. I do not mean to misrepresent the hon. Gentleman, but I thought I heard him refer to that. I shall draw the attention of Ministers at the DHSS to what the hon. Gentleman has said. I have not been advised of such complaints, but perhaps the hon. Gentleman will enlighten me.

Mr. Alfred Morris: The Minister will be aware that I was involved in legislating for the grants to which he referred. Can he tell me how much has been spent in the past few years on publicising those grants to improve the take-up?

Mr. Lamont: I do not know the answer to that question. I intended to refer to what the right hon. Gentleman's hon. Friend the Member for West Derby said. He said that the grants have been undersubscribed, even by the amounts that the Government have put by. That is an important point. I shall draw the attention of my hon. Friend the Minister for Social Security to what 1 think has been the feeling in the debate that if we are to rest the argument of grants, the grants should be publicised. There has been a poor uptake of the grants in the past few years.
Perhaps it is worth mentioning, in passing, the job introduction scheme which is run by the MSC, under which grants of £45 a week can be paid to employers to take on a disabled person for a trial period giving him a chance to prove that he can do the job. Under that scheme, nearly 8,500 disabled people have been helped over the past five years by way of grants totalling about £2·7 million. There are other schemes of assistance for the disabled.
The normal tax reliefs apply on top of the grants to the net amount—the cost, less any grant, of the employer's expenditure; that is, the normal rules for machinery and plant and the fabric of qualifying buildings apply to the expenditure which the employer incurs. If, for the purposes of his business, an employer spends money on equipment for the benefit of his disabled employees which consists of machinery or plant, the equipment will qualify for an annual allowance of 25 per cent. on the reducing balance basis. The hon. Member for Lcyton (Mr. Cohen) spoke on that point. The capital allowance system already provides relief at the rate proposed by new clause 4 for an employer's expenditure on, for example, lifts, other types of mechanical hoist and special toilet facilities. The relief extends to the cost of any alterations to an existing building which are incidental to the installation of such equipment. So, for equipment, it is unlikely that new clause 4 would represent a new relief.

Mr. Carter-Jones: Very often, an employer buys standard equipment and the opportunity comes along to employ a disabled person. Is the Financial Secretary spelling out to the House that whatever modifications are made to such equipment which allows a disabled person to operate it they will count under the category?

Mr. Lamont: I was saying that if an employer buys a piece of captial equipment, it will qualify for the 25 per cent. allowance. The cost of any alterations to the building that are incidental to the installation of that equipment that qualifies for the 25 per cent. would qualify for the 25 per cent. I am not saying that alterations to buildings for the purpose of access qualify for 25 per cent. That was the point on which I wished to develop my remarks.

Mr. Carter-Jones: The Financial Secretary has now come into the cloudy area which I and my right hon. and hon. Friends and his right hon. and hon. Friends have come across from time to time. Will the Financial Secretary clear the cloudy area, which seems to give officials the right to make interpretations which he never intended?

Mr. Lamont: I shall see whether any further clarification can be given. I shall look at the point that the hon. Gentleman has made to me. I wanted to be careful not to use other than the precise words which 1 know represent the position legally. I follow the point that the hon. Gentleman has made. I shall look at it further. I can see that it can give rise to a grey area and that it may be difficult to draw the line as to where the end of the 25 per cent. allowance comes. If I can give any further clarification, I shall write to the hon. Gentleman. Indeed, I shall write to him anyway.
We have said that the grant is the first line of assistance. However, if the premises to be adapted are industrial or agricultural buildings, capital expenditure on altering them will qualify for an annual allowance of 4 per cent.

The same will apply in the case of certain hotels. If the premises are used for the purposes of scientific research or are in an enterprise zone and qualify for the special allowances there, capital allowances of 100 per cent. will be available.
I recognise what hon. Gentlemen wish to do. I am afraid that I cannot go as far as they would like, but I hope that they recognise that the existing arrangements, which are primarily outside the tax system although some are within it, provide a degree of assistance and encouragement to employers to take on disabled people.

Mr. Wigley: Do I understand the right hon. Gentleman correctly? Is he saying that adaptations to buildings to 'meet the needs of disabled people—for example, ramps —would qualify for a 4 per cent. rate but could not qualify for 25 per cent.? Are the Government against changing that 4 per cent. to 25 per cent. as a matter of policy, not because there is a technical reason why it should not be changed?

Mr. Lamont: The position is as I have said with regard to industrial and agricultural buildings, hotels, premises used for scientific research or buildings in an enterprise zone. There have not been capital allowances for commercial buildings, as I am sure the hon. Member for Caernarfon appreciates, for obvious reasons. Capital allowances have, in general, been provided on assets that depreciate rather than on those that appreciate. That is the distinction which has been drawn between commercial buildings and other buildings.
I should like to draw attention to one point concerning the new clause, although I make no complaint about it. As drafted, the new clause would give employers capital allowances at the 25 per cent. rate in respect of qualifying expenditure on adapting commercial buildings, because capital expenditure on such buildings outside enterprise zones does not attract tax relief. On the other hand, similar expenditure on industrial and agricultural buildings and hotels would not qualify for allowances at this rate under the new clause, because it is likely that the expenditure already qualifies for allowance, but at 4 per cent. There is a difference of treatment in the present system. The new clause is a move towards greater differences in tax allowances on buildings. I drew that point to the attention of the hon. Member for Sedgefield because I was not sure that that was his deliberate intention.
Although there are points which I shall pursue and points to which I will return— in the case of the hon. Member for Eccles—and others to which I shall draw the attention of my hon. Friend the Minister for Social Security, especially those concerning publicity for the grants system, we think that we should look largely to the grants in respect of conversion of buildings. We think that the existing arrangements both outside and inside the tax system provide a degree of assistance.

Mr. Blair: This point should be clarified because some Opposition Members may have misunderstood it. As I understand it, there are no allowances for alterations to industrial buildings for disabled people.

Mr. Lamont: If industrial buildings are adapted, capital expenditure on altering them qualifies for an annual allowance of 4 per cent., as I said to the hon. Gentleman.

Mr. Alfred Morris: This is an important debate for people with disabilities. The starting point, for both sides


of the House, should be the undoubted entitlement of disabled people to count as a part of and not apart from society, which is impossible if buildings in which they could work are inaccessible to them. They want, wherever possible, to enjoy the dignity of being taxpayers, not the dependence of supplementary benefit. That means allowing them access to far more places of work than are accessible to them now. Not to do everything within our power to improve access is to pile handicap on handicap for disabled people.
The Financial Secretary to the Treasury cited some statistics on the employment of disabled people. In most parts of Britain, unemployment among disabled people who are looking for work is twice as high as it is among people generally. As my hon. Friend the Member for Eccles (Mr. Carter-Jones) said, the same is grievously true of disabled school leavers who, in so many cases, now go straight from school to scrap heap. Unemployment is bad enough among the able-bodied, but among disabled people it is a scandal which should be of surpassing concern to the House.
Not long ago, I saw a deputation from the organisations of disabled people in Scotland, Wales and Northern Ireland. They told me that, in many parts of all three, unemployment among disabled people who are registered for work is now more than 80 per cent. That is the sombre backcloth to the debate and the justification for the new clause. How can the Government possibly justify resistance to a measure that can help to change for the better that shocking statistic from Scotland, Wales and Northern Ireland? For a disabled person, unemployment is a double handicap which can lead to double despair, and reducing it should be one of our highest priorities.
6.45 pm
The Treasury is keen enough to cost any and every claim for a new benefit. I know that as a former Minister for the Disabled. What costing has the Treasury done in relation to the new clause? What does it estimate the net cost would be? The aim of the new clause is to take people off social security by making them taxpayers. The net cost could well be negligible, while the good it can achieve will be crucially important to people with disabilities. Rejection of the measure would be seen not only as self-defeating but as hurtful to some of the most needful people in Britain today.
In granting capital allowances for expenditure on building works to provide access for disabled workers, the new clause could well have been more than self-financing. How can the Financial Secretary possibly reject the proposition which we are making in the new clause when there are tax allowances for the managing director's cocktail cabinet and, as my hon. Friend the Member for Sedgefield (Mr. Blair) said, for the Royal Doulton in the directors' dining room?
The justification for the new clause is self-evident and its drafting closely follows that of other legislation. The Financial Secretary questioned the drafting of the new clause. If there are defects, I am sure that the combined ingenuity of both sides of the House will overcome any problem that may stand in the way of carrying through this important reform for disabled people.
The new clause is about improving access not only for physically disabled people, but for the sensorily disabled,

especially the deaf and the blind. They, too, have daunting, not to say intimidating, problems of access to many public and social buildings.
The Government never tire of expressing their concern about the totally unacceptable level of unemployment among disabled people, but what is needed is practical concern and meaningful help, not the customary mixture of sympathy and sloganising. My hon. Friend the Member for Sedgefield made a compelling case for a measure that is of the first importance if we are further to improve the well-being and status of people with disabilities. The new clause is not about compassion; it is about equal rights. I am delighted to support it. If, as the Financial Secretary said, this is but a modest improvement, why on earth can he not accept the new clause?

Question put, That the clause be read a Second time:—

The House divided: Ayes 166, Noes 215.

Division No. 248]
[6.47 pm


AYES


Adams, Allen (Paisley N)
Ewing, Harry


Alton, David
Fatchett, Derek


Archer, Rt Hon Peter
Faulds, Andrew


Ashdown, Paddy
Field, Frank (Birkenhead)


Ashley, Rt Hon Jack
Fields, T. (L'pool Broad Gn)


Ashton, Joe
Fisher, Mark


Atkinson, N. (Tottenham)
Flannery, Martin


Banks, Tony (Newham NW)
Foot, Rt Hon Michael


Barnett, Guy
Forrester, John


Barron, Kevin
Foster, Derek


Beckett, Mrs Margaret
Foulkes, George


Beith, A. J.
Fraser, J. (Norwood)


Bell, Stuart
Freud, Clement


Bidwell, Sydney
Garrett, W. E.


Blair, Anthony
George, Bruce


Bray, Dr Jeremy
Gilbert, Rt Hon Dr John


Brown, Gordon (D'f'mline E)
Gould, Bryan


Brown, Hugh D. (Provan)
Gourlay, Harry


Brown, N. (N'c'tle-u-Tyne E)
Hamilton, James (M'well N)


Brown, R. (N'c'tle-u-Tyne N)
Hamilton, W. W. (Fife Central)


Bruce, Malcolm
Hancock, Michael


Buchan, Norman
Hardy, Peter


Callaghan, Jim (Heyw'd &amp; M)
Harman, Ms Harriet


Campbell-Savours, Dale
Harrison, Rt Hon Walter


Canavan, Dennis
Heffer, Eric S.


Carlile, Alexander (Montg'y)
Hogg, N. (C'nauld &amp; Kilsyth)


Carter-Jones, Lewis
Home Robertson, John


Cartwright, John
Howells, Geraint


Clark, Dr David (S Shields)
Hoyle, Douglas


Clarke, Thomas
Hughes, Dr Mark (Durham)


Clay, Robert
Hughes, Roy (Newport East)


Clelland, David Gordon
Hughes, Sean (Knowsley S)


Clwyd, Mrs Ann
Hughes, Simon (Southwark)


Cocks, Rt Hon M. (Bristol S)
Janner, Hon Greville


Cohen, Harry
John, Brynmor


Coleman, Donald
Johnston, Sir Russell


Cook, Frank (Stockton North)
Jones, Barry (Alyn &amp; Deeside)


Cook, Robin F. (Livingston)
Kaufman, Rt Hon Gerald


Corbett, Robin
Kennedy, Charles


Corbyn, Jeremy
Kirkwood, Archy


Craigen, J. M.
Lambie, David


Cunliffe, Lawrence
Leighton, Ronald


Cunningham, Dr John
Lewis, Ron (Carlisle)


Dalyell, Tam
Lewis, Terence (Worsley)


Davies, Ronald (Caerphilly)
Livsey, Richard


Davis, Terry (B'ham, H'ge H'I)
Lloyd, Tony (Stretford)


Deakins, Eric
McCartney, Hugh


Dewar, Donald
McDonald, Dr Oonagh


Dixon, Donald
McGuire, Michael


Douglas, Dick
McKay, Allen (Penistone)


Duffy, A. E. P.
McKelvey, William


Dunwoody, Hon Mrs G.
MacKenzie, Rt Hon Gregor


Eadie, Alex
McWilliam, John


Eastham, Ken
Madden, Max


Edwards, Bob (W'h'mpt'n SE)
Marek, Dr John


Evans, John (St. Helens N)
Mason, Rt Hon Roy






Maxton, John
Shore, Rt Hon Peter


Meadowcroft, Michael
Short, Ms Clare (Ladywood)


Michie, William
Short, Mrs R.(W'hampt'n NE)


Millan, Rt Hon Bruce
Silkin, Rt Hon J.


Miller, Dr M. S. (E Kilbride)
Skinner, Dennis


Mitchell, Austin (G't Grimsby)
Smith, Rt Hon J. (M'ds E)


Morris, Rt Hon A. (W'shawe)
Spearing, Nigel


Morris, Rt Hon J. (Aberavon)
Steel, Rt Hon David


O'Neill, Martin
Stewart, Rt Hon D. (W Isles)


Orme, Rt Hon Stanley
Straw, Jack


Park, George
Thomas, Dafydd (Merioneth)


Parry, Robert
Thomas, Dr R. (Carmarthen)


Pavitt, Laurie
Thompson, J. (Wansbeck)


Pendry, Tom
Tinn, James


Penhaligon, David
Torney, Tom


Pike, Peter
Wainwright, R.


Radice, Giles
Wardell, Gareth (Gower)


Randall, Stuart
Wareing, Robert


Redmond, Martin
Welsh, Michael


Rees, Rt Hon M. (Leeds S)
Wigley, Dafydd


Richardson, Ms Jo
Williams, Rt Hon A.


Roberts, Ernest (Hackney N)
Wilson, Gordon


Robertson. George
Winnick, David


Robinson, G. (Coventry NW)
Woodall, Alec


Rogers, Allan
Wrigglesworth, Ian


Rooker, J. W.



Ross, Ernest (Dundee W)
Tellers for the Ayes:


Rowlands, Ted
Mr. Frank Haynes and


Sheldon, Rt Hon R.
Mr. Ray Powell.


NOES


Adley, Robert
Galley, Roy


Aitken, Jonathan
Gardiner, George (Reigate)


Atkins, Rt Hon Sir H.
Gardner, Sir Edward (Fylde)


Atkins, Robert (South Ribble)
Garel-Jones, Tristan


Atkinson, David (B'm'th E)
Gilmour, Rt Hon Sir Ian


Batiste. Spencer
Glyn, Dr Alan


Beaumont-Dark, Anthony
Goodhart, Sir Philip


Bennett, Rt Hon Sir Frederic
Gow, Ian


Best, Keith
Gower, Sir Raymond


Biggs-Davison, Sir John
Greenway, Harry


Blackburn, John
Gregory, Conal


Boscawen. Hon Robert
Griffiths, Sir Eldon


Brandon-Bravo, Martin
Griffiths, Peter (Portsm'th N)


Brown, M. (Brigg &amp; Cl'thpes)
Grylls, Michael


Bruinvels, Peter
Hamilton, Hon A. (Epsom)


Buchanan-Smith, Rt Hon A.
Hampson, Dr Keith


Burt, Alistair
Hanley, Jeremy


Butterfill, John
Hargreaves, Kenneth


Carlisle, Kenneth (Lincoln)
Harris, David


Carttiss, Michael
Harvey, Robert


Chope, Christopher
Hawkins, C. (High Peak)


Churchill, W. S.
Hawkins, Sir Paul (N'folk SW)


Clark, Dr Michael (Rochford)
Hawksley, Warren


Clark, Sir W. (Croydon S)
Hayes, J.


Clarke, Rt Hon K. (Rushcliffe)
Hayhoe, Rt Hon Barney


Clegg, Sir Walter
Heathcoat-Amory, David


Cockeram, Eric
Heddle, John


Colvin, Michael
Henderson, Barry


Conway, Derek
Heseltine, Rt Hon Michael


Coombs, Simon
Hickmet, Richard


Cope, John
Hicks, Robert


Corrie, John
Higgins, Rt Hon Terence L.


Critchley, Julian
Hind, Kenneth


Douglas-Hamilton, Lord J.
Hirst, Michael


Dunn, Robert
Holland, Sir Philip (Gedling)


Dykes, Hugh
Hordern, Sir Peter


Emery, Sir Peter
Howard, Michael


Farr, Sir John
Howarth, Alan (Stratf'd-on-A)


Favell, Anthony
Hunt, David (Wirral W)


Fenner, Mrs Peggy
Hunter, Andrew


Finsberg, Sir Geoffrey
Irving, Charles


Fookes, Miss Janet
Jessel, Toby


Forsyth, Michael (Stirling)
Johnson Smith, Sir Geoffrey


Forth, Eric
Jones, Gwilym (Cardiff N)


Fowler. Rt Hon Norman
Jones, Robert (Herts W)


Fox, Sir Marcus
Kershaw, Sir Anthony


Fraser, Peter (Angus East)
Key, Robert


Freeman, Roger
Knight, Greg (Derby N)


Gale, Roger
Knight, Dame Jill (Edgbaston)





Knowles, Michael
Ryder, Richard


Lamont, Rt Hon Norman
Sackville, Hon Thomas


Latham, Michael
Sainsbury, Hon Timothy


Lawler, Geoffrey
Sayeed, Jonathan


Lawrence, Ivan
Shaw, Giles (Pudsey)


Lawson, Rt Hon Nigel
Shaw, Sir Michael (Scarb')


Leigh, Edward (Gainsbor'gh)
Shelton, William (Streatham)


Lennox-Boyd, Hon Mark
Shepherd, Colin (Hereford)


Lester, Jim
Shersby, Michael


Lewis, Sir Kenneth (Stamf'd)
Sims, Roger


Lilley, Peter
Smith, Tim (Beaconsfield)


Lloyd, Peter (Fareham)
Speed, Keith


Lord, Michael
Spencer, Derek


MacGregor, Rt Hon John
Spicer, Jim (Dorset W)


MacKay, Andrew (Berkshire)
Spicer, Michael (S Worcs)


McLoughlin, Patrick
Stanbrook, Ivor


McNair-Wilson, M. (N'bury)
Stanley, Rt Hon John


Major, John
Steen, Anthony


Malins, Humfrey
Stevens, Lewis (Nuneaton)


Marland, Paul
Stewart, Allan (Eastwood)


Marlow, Antony
Stewart, Andrew (Sherwood)


Marshall, Michael (Arundel)
Sumberg, David


Mather, Carol
Tapsell, Sir Peter


Maude, Hon Francis
Tebbit, Rt Hon Norman


Mellor, David
Temple-Morris, Peter


Merchant, Piers
Terlezki, Stefan


Meyer, Sir Anthony
Thomas, Rt Hon Peter


Mills, Iain (Meriden)
Thompson, Donald (Calder V)


Mills, Sir Peter (West Devon)
Thompson, Patrick (N'ich N)


Moate, Roger
Thorne, Neil (Ilford S)


Morris, M. (N'hampton S)
Thornton, Malcolm


Morrison, Hon C. (Devizes)
Thurnham, Peter


Moynihan, Hon C.
Townend, John (Bridlington)


Murphy, Christopher
Twinn, Dr Ian


Neale, Gerrard
Vaughan, Sir Gerard


Nelson, Anthony
Viggers, Peter


Neubert, Michael
Waddington, David


Newton, Tony
Wakeham, Rt Hon John


Nicholls, Patrick
Wall, Sir Patrick


Norris, Steven
Waller, Gary


Onslow, Cranley
Ward, John


Osborn, Sir John
Wardle, C. (Bexhill)


Page, Sir John (Harrow W)
Watts, John


Patten, Christopher (Bath)
Wells, Bowen (Hertford)


Pawsey, James
Wells, Sir John (Maidstone)


Peacock, Mrs Elizabeth
Wheeler, John


Percival, Rt Hon Sir Ian
Whitfield, John


Pollock, Alexander
Whitney, Raymond


Portillo, Michael
Wiggin, Jerry


Powley, John
Wilkinson, John


Prentice, Rt Hon Reg
Winterton, Mrs Ann


Proctor, K. Harvey
Winterton, Nicholas


Raffan, Keith
Wolfson, Mark


Renton, Tim
Wood, Timothy


Rhodes James, Robert
Yeo, Tim


Ridsdale, Sir Julian
Young, Sir George (Acton)


Rifkind, Rt Hon Malcolm



Robinson, Mark (N'port W)
Tellers for the Noes:


Roe, Mrs Marion
Mr. Tony Durant and


Rowe, Andrew
Mr. Gerald Malone.


Rumbold, Mrs Angela

Question accordingly negatived.

New Clause 11

SELF EMPLOYMENT

`(1) No person shall be subjected to tax under Schedule E of the Income and Corporation Taxes Act 1970, where that person is employed otherwise than under a contract of employment and notice to that effect has been submitted to Her Majesty's Inspector of Taxes.
(2) In any determination of employment or self-employment status hereunder submission of such notice shall be conclusive evidence of self-employed status save where General Commissioners or Special Commissioners, on application by Her Majesty's Inspector of Taxes, shall determine that the taxpayer is an employee.


(3) No such determination by General Commissioners or Special Commissioners shall be made unless:

(a) the taxpayer gains earnings from one single employer under one contract of employment only; and
(b) such a contract of employment is evidenced in writing; and
(c) the taxpayer has the right under his contract of employment to be reimbursed with authorised out of pocket expenses.'—[Mr. Watts.]

Brought up, and read the First time.

7 pm

Mr. John Watts: I beg to move, That the clause be read a Second time.
You will recognise the pedigree of the new clause, Mr. Speaker, because of its marked similarity to the Right to be Self-Employed Bill introduced by my hon. Friend the Member for Stirling (Mr. Forsyth) under the ten minutes rule on 4 February this year. Your will recall that the Bill received its First Reading by a majority of 174 to 125, which shows the widespread concern in the House about the need to clarify the status of the self-employed and, indeed, the need to encourage the further growth of self-employment.
There has been a welcome development in that area. Since 1970 the numbers of self-employed have increased by 700,000 to a new total in excess of 2·5 million, or one in 10 of the employed population—the highest level for 60 years. That growth has been encouraged by various measures promoted by the Government, notably the enterprise allowance. It has also been helped by the reduction in national insurance contributions for the self-
I believe that the growth of self-employment also reflects a substantial change in attitude and a far greater willingness to create a job for oneself. Earlier, the hon. Member for Sedgefield (Mr. Blair) referred to many of his constituents using redundancy money to set up their own businesses. Those people are the new self-employed —those who go out and make jobs for themselves if nobody else will make a job for them.
Further growth of self-employment is obstructed unnecessarily by the arcane way in which income tax operates, and, in particular, by the difficulty that the self-employed can face in establishing their self-employed status. The new clause seeks to provide a simple mechanism whereby self-employed status can be established. Subsection (1) states that schedule E would not apply to anyone
where that person is employed otherwise than under a contract of employment and notice to that effect has been submitted to Her Majesty's Inspector of Taxes.
The procedure for the self-employed person is simple. He has merely to notify Her Majesty's inspector of taxes that he is self-employed. If we were to leave it at that, I acknowledge that the procedure could be open to abuse. People who were not self-employed might claim that status in the belief that it would confer on them certain advantages. Therefore, subsection (2) makes the notice given to Her Majesty's inspector of taxes conclusive evidence of self-employed status, unless the inspector makes an application to the general commissioners or special commissioners, and, on the inspector's application, they determine that the taxpayer is not self-employed, but an employee. We have the balance there.
The self-employed person can make a claim to be self-employed and notify the Inland Revenue that that is so, but the Inland Revenue has the opportunity to challenge

that if it does not believe the assertion to be in accordance with the facts. The matter is determined conclusively by the commissioners. It is right that there should be that independent adjudication where there is a dispute between the Inland Revenue and the taxpayer.
Subsection (3) seeks to define an employee as a taxpayer who
gains earnings from one single employer under one contract of employment only".
That contract must be evidenced in writing, and the taxpayer must be entitled
under his contract of employment to be reimbursed … out of pocket expenses.
It is just possible that the definition of "employee" embodied in the new clause is not perfect and that further refinements would be needed before the scheme that I have outlined could operate without giving rise to a serious risk of abuse. I am sure that if there is any imperfection in the definition in the new clause, when my right hon. Friend the Financial Secretary replies to the debate, he will be quick to draw it to my attention and to suggest a constructive way in which that problem can be overcome.
I hope that there will be general recognition of the need for a method, such as I have proposed, whereby a taxpayer can establish his status as a self-employed person. At present there is no clearance procedure. There have been cases in my constituency — no doubt other hon. Members can cite similar instances in their constituencies —where taxpayers have carried out work as subcontractors for local businesses in the belief, common to the taxpayer and the company, that they were entitled to be treated as self-employed. Then, some time after the event —perhaps when those arrangements have subsisted for a year, 18 months or two years—along comes the Inland Revenue, saying, "No, you are not self-employed. You are an employee, and we will treat you as an employee from the time when you first started to treat yourself as self-employed."
It is not satisfactory that matters should reach that stage. Such problems would be resolved if the new clause, or something similar to it which was based on its underlying principles, were embodied in our tax law. Thus, taxpayers could establish their right to be treated as self-employed by a simple means of notification. The onus would be upon the Inland Revenue to challenge that claim if it seemed unjustified. Ultimately the status would be determined by the independent commissioners. That seems to me to be a good scheme.
Even if the precise form of the new clause does not commend itself to my right hon. Friend, I am sure that, as a staunch supporter of the enterprise culture, the principle will appeal to him.

Mr. Patrick Thompson: I am grateful for the chance to speak in support of new clause 11.
As a Member of Parliament in Norwich, I am continually called upon to help or advise small business men or people who aspire to run a business of one sort or another. In every case, the person is confused by our system of income tax legislation and value added tax legislation. Indeed, in our local newspaper during the past 24 hours an Inland Revenue official was quoted as saying, "You cannot expect the system to be fair," or words to that effect. I hope that that is not a correct report, but that is what was said in the paper.
I know of cases of people being forced to operate PAYE in unsuitable circumstances. That is the very point that is


addressed by new clause 11. I can best illustrate it by quoting from two letters that concern a constituency case. The first is a letter from Her Majesty's inspector of taxes in Norwich, dated 7 March. He says:
Dear Sir
I refer to our previous correspondence concerning the agency operated by yourself. It is my opinion"— note the word "opinion"— "that this agency is caught"— note the use of the word "caught" "under Finance (No. 2) Act 1975 Section 38 and as such all the earnings of the relief workers provided by the agency are chargeable under Schedule E.
In that case, I had already been in correspondence with my constituent. Not surprisingly, he was distressed by the outcome. He wrote me a letter from which I shall quote briefly because it illustrates perfectly the need for new clause 11. He starts by saying:
If you remember my problem concerning my HGV relief driving service with the DHSS and now the Inland Revenue, I have now been given a date to start a PAYE system which I cannot do, as I have no regular work from the companies I deal with. This means that myself and about eight self employed men will now be unemployed.
He went on to say:
I feel very sad to think that I built this business up from nothing to finding work for 9 men and be closed down with the people who should be helping me find work.
He went on to make complimentary remarks regarding the Prime Minister's belief that people should be able to build up their own businesses and thrive in this way. In conclusion, he states:
One of these DHSS inspectors told me they would rather see men unemployed than working through my Agency. The reason being that they are losing revenue for these men and there are too many self-employed men having a go on their own.
That case illustrates perfectly the need for new clause 11 and the reason why I supported the ten-minute Bill introduced by my hon. Friend the Member for Stirling (Mr. Forsyth).
I should like to quote from a letter from my right hon. Friend the Secretary of State for Transport when he was the Financial Secretary to the Treasury:
For example, I am advised that it is at least arguable that the definition in your Bill"— that is the ten-minute Bill— "would treat as 'self-employed' the 100,000 or so school teachers marking examination papers.
I can comment on this because I was a school teacher and was marking examination papers during the time that the change was made from self-employed status or schedule D to schedule E status. It seemed at that time to be a move in the wrong direction. Nothing that has occurred since has made me change my opinion. It is just another example of our extolling the virtues of people doing their own thing while the Inland Revenue, under its masters at the Treasury, do exactly the opposite.
It is time that the Government took on board the fact that what is happening on the ground does not always follow the rhetoric that we put forward, and it is time that we did something about that. There is too much bureaucracy and the system must be simplified for the benefit and expansion of small business, and the employment of people—which is what we all want—as well as bringing about a general decrease in irritation among the business community, especially those running small businesses.
There seems to be an order of batting in these matters. At the top of the tree and most favoured are the well-established business men, advised by accountants who make the maximum, obviously legal, use of the available allowances. Second, and quite a long way behind, come those who are on PAYE and who feel burdened by the fact that there is no way in which they can claim for allowable expenses. Teachers are right when they say it is almost impossible for them to claim any type of sensible allowable expense. They have a just grievance. Finally, right at the bottom of the tree—this is the point of new clause 11— are those who are trying to start up on their own, such as the man from whose letter I have quoted. He was trying to establish himself and take on casual work in the hope that it would lead to something better, like the building worker who operates on the 715, if he is lucky enough to get one and is able to overcome all the difficulties.
For the people in the third of my classifications the situation is almost intolerable. The Government should seriously consider the new clause and the Bill which preceded and inspired it. It is no good saying that this is a problem that we can address at some other time. It is at the root of what the Government are proposing, and we must do something about it as soon as possible.
With our present system of tax and social security, we are strangling the goose that will lay the golden egg. Priority should be given to this clause. It is even more urgent than tax cuts. Something must be done to remove the stranglehold of the complexity of the regulations as well as to cut taxation. I support new clause 11 with examples taken from my constituency, and I hope that it will find favour with my right hon. Friend the Financial Secretary to the Treasury.

Mr. Michael Forsyth: I thank my hon. Friend the Member for Slough (Mr. Watts) for tabling the new clause. It is of fundamental importance and I believe that there is support from both sides of the House for the spirit behind it. Indeed, the ten-minute Bill received support from all parties.
Although the Government have had remarkable success in creating conditions for the growth of selfemployement, we must recognise that they started from a low base. There is considerably more scope for its development. Although my right hon. Friend the Financial Secretary to the Treasury may argue that at the moment every worker has the right to be self-employed, in practice, it is a heavily qualified right. There is considerable uncertainty about where the courts will draw the line between employment and self-employment. The uncertainty is compounded by what is clearly a direct interest on the part of the Inland Revenue to minimise the numbers of self-employed taxpayers. The considerable resources which are available to the Revenue to act on the conduct of appeals adds to the risks for self-employment both for the worker and for the client.
My right hon. Friend will no doubt be concerned about the costs of implementing the new clause. If there were a substantial expansion in the numbers of self-employed, which all of us on this side of the House would welcome, no doubt he would have to consider the financial implications. Certainly there would be a reduction in the national insurance revenue. That reduction would almost be matched by a reduction in liabilities on the fund. An increase in the numbers of self-employed would mean that


there were fewer people claiming benefits. On the supply side, more efficient work patterns would undoubtedly increase economic performance and general tax revenue.
Many of the additional expenses which would be allowed under schedule D, such as advertising, secretarial assistance and professional fees, would represent additional taxable income in other taxpayers' hands. My hon. Friend may feel that this new clause is not as well drafted as it might be, but I hope that he can say that he will try to meet its spirit by establishing a clear definition of self-employment for all tax, national insurance and employment law purposes. That would go a long way to dispelling any remaining suspicions there might be — they come from unexpected quarters, the National Federation of Self-Employed and Small Businesses, the Institute of Directors and the Confederation of British Industry—that the Government are not as committed to encouraging self-employment as they profess to be.
I believe that the new clause would do an immense amount to reduce the burdens on business both for the self-employed and, depending on one's perspective, the employer's clients. Much uncertainty has resulted in people being reclassified from the status of self-employed to employed. It has also resulted in employers finding themselves liable for national insurance contributions and tax which they had no reason to suspect they would have to meet. In one case that resulted in substantial financial difficulties and premises had to be sold to meet financial obligations. The new clause will enable the tax position to be determined simply and immediately at the time of contract. It would reduce the risk to businesses of incurring costs in arguing their position with the commissioners.
My hon. Friend the Member for Norwich, North (Mr. Thompson) mentioned examination markers. I have also been in correspondence with my hon. Friend the Minister and his predecessor. It emerged that the 100,000 examiners who were reclassified from schedule D to schedule E could not be regarded as small business men in business on their own account, so the Revenue was justified in singling out that group. Had those examination markers bothered to read the leaflet "Employed or Self Employed" produced by the Department, and had they answered the questions which help one to decide whether one is employed or self-employed, they would have found that they fitted the criteria for the self-employed more closely than those for the employed. Of the seven questions to which an employee would tend to answer yes, examination markers would definitely answer no to five of them and might answer no to the questions about the right to substitute, depending on the contract, and about working wholly or mainly for one employer, depending on the number of boards worked for and the relative duration and size of contracts.
I also understand that, in determining whether those examiners were to be reclassified, the Inland Revenue had to consider the contractual arrangement case by case, and that in some cases the matter could be resolved only by reference to the wording of university statutes under which the particular examining board was established. The tax status of the examiners was far from clear, and their case highlights the limitations of leaflet IR56 which the Department produced to make the position clear.
I suspect that the background to this has nothing to do with employment status and everything to do with ensuring that earnings are declared and taxed. I am sure that my hon. Friend the Minister would not argue that examination markers may not have declared their earnings which is why it is necessary to relassify them, because that has nothing to do with the appropriate tax status for their earnings.
There is a clear need to change the burden of proof. At present tax inspectors can make arbitrary decisions about whether one is self-employed, and the literature from the Department leaves room for doubt. If we could change the burden of proof so that the onus was on the inspector to argue that the individual was not entitled to self-employed status, it would be a major step forward.
If we could make it easier for people to be self-employed, we would at a stroke achieve much of what the Government say they want to achieve in unburdening businesses. When employers take on people to carry out functions as self-employed people under contract, they do not add to their turnover, which means that they may not be required to register for VAT, and that the number of their employees who must be covered by health and safety at work regulations, employment protection and all the other burdens which add to employers costs will not increase. It would enable employers to provide employment at a lower price without depressing wage levels.
In short, as my hon. Friend the Member for Norwich, North pointed out, it enables us to put into practice and to establish the conditions to create the enterprise culture, the standing on one's own two feet and the entrepreneurial zeal which is so much a part of the—I hesitate to use the word "rhetoric" — philosophy and objectives of the Government. Although my hon. Friend the Minister may not be able to accept the new clause tonight, I hope that he will assure us that he will do everything possible and that he recognises the genuine problem which requires his attention.

Mr. Hanley: I wish briefly to support the amendment in the light of the cases of some of my constituents. A large number of people in my constituency are employed in the film, television and radio industries. During the past four years many have come to me, not only because I am a Member of Parliament, but because I am a chartered accountant and may understand their tax affairs on a free basis—many of them could not afford professional help — when they have found themselves arbitrarily reclassified as being in schedule E. That has often caused great hardship to them and their families. Moreover, in many cases reclassification has been so arbitrary as to be almost illogical.
On 4 February my hon. Friend the Member for Stirling (Mr. Forsyth) mentioned that more than 7,000 self-employed taxpayers engaged in those industries between 1979 and 1983 were reclassified as schedule E, and that a further 100,000 people engaged in part-time or occasional employment were also reclassified by the Inland Revenue during that period. No one would defend those who abuse the schedule D system by trying to pretend that they are self-employed when they are employed. However, artists and technicians based at an umbrella studio used by different production companies—perhaps even one after the other—often work for separate companies and there is no guarantee of continued employment from one company to another. They are hired by film companies


although they happen to work within one building. Those people have been shabbily treated. It is greatly desirable that the Inland Revenue should use a little more discretion in reclassifying individuals as schedule E, particularly because of its sudden financial effect on family life.
The Inland Revenue is tightening up on certain individuals who have paid tax under schedule D to such an extent that it is being increasingly grossly unfair. It is claiming that expenses cannot be proven for past years and, clearly, they often cannot be proven when the expenses were estimates. It is imposing back taxes and heavy penalties, and some of my constituents have suffered the loss of large sums as a result. Therefore, I ask my hon. Friend the Minister to consider whether he is being fair to self-employed people.

Mr. Norman Lamont: I was extremely interested to hear the speeches of my hon. Friends the Members for Slough (Mr. Watts) and for Stirling (Mr. Forsyth) because one of my first tasks as Financial Secretary to the Treasury was to read the file of letters which my hon. Friend the Member for Stirling had written on this subject. My hon. Friends have fought a doughty campaign with the Right to be Self Employed Bill and the Finance Bill. I certainly recognise, particularly from the speech of my hon. Friend the Member for Norwich, North (Mr. Thompson), that there are some genuine anxieties about the classification of the self-employed. I hope that I shall not shock my hon. Friends by declaring immediately that, although I was extremely intrigued by their correspondence, I remained unconvinced by it, which is why I was looking forward greatly to the debate. I wondered whether I would be persuaded by them, but I am not.
My hon. Friend the Member for Norwich, North made some powerful points and I do not doubt that he represented a genuine sense of grievance. In view of what he and my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) said, I undertake to look at certain matters. I shall certainly wish to consider the implications of the cases that have been mentioned, as well as the general principles outlined by my hon. Friends.
7.30 pm
Under the new clause, the individual could, by simple notification, elect to be self-employed. That of itself would be sufficient to establish self-employed status unless the commissioners determined that the individual was an employee. As drafted, the clause would determine status only for tax purposes, although I understand that the intention is that, once self-employed status had been elected, other matters, such as national insurance contributions, would be affected. Similarly, as a self-employed person, the individual would give up entitlement to unemployment benefit and the earnings-related additions to other benefits, and of course he would no longer he covered by legislation on employment protection or health and safety at work.
In principle, it is right that people should be able to choose to be self-employed. I do not take issue with that principle. The clause is not, however, about choosing self-employment; it is about choosing self-employed status for tax and other purposes, even though in reality the engagement in question may have all the attributes of employment.
I am sympathetic to what my hon. Friends have said, but I am puzzled as to why they should wish to go so far and to give a choice almost regardless of any objective test.

I am certainly prepared to look at the working of the system and at individual cases, but I am surprised that my hon. Friends should wish there to be a choice regardless of any test of objective considerations. I would not say that the test is wonderful or that it has been perfectly administered, but I am surprised at the lengths to which my hon. Friends take their argument.
It is already open to both parties to any engagement to arrange the terms so as to make the engagement one of self-employment rather than employment. Whether self-employment is achieved in a particular case will then depend upon the specific terms of the working relationship of that engagement. When in doubt, the Inland Revenue on the tax side and DHSS on the national insurance contributions side look to established case law for guidance. The courts have laid down a number of criteria, and the Revenue—as my hon. Friend the Member for Stirling acknowledged—has produced a leaflet, intended only as general guidance. However, the key question that it poses is whether the individual is in business on his own account.
The Government are committed to the growth of self-employment, and we have done much to encourage people in that direction. My hon. Friend the Member for Slough pointed out that since we took office in 1979 the number of self-employed people has risen by well over a third from 1·9 million to 2·6 million. We are extremely pleased to see that growth continuing. We welcome measures that will increase genuine self-employment. However, I do not believe that the present proposal is precisely targeted on that. I think that the main effect of the new clause would be to enable a large number of ordinary employees simply to change their status for tax and other purposes without necessarily changing their present work pattern in any way, or taking risks. Moreover, if enough people elected to change their status, there could be a heavy cost in reduced tax and national insurance contributions. My hon. Friend the Member for Stirling considers that the reduced liabilities in terms of reduced entitlements to benefit would offset that effect. I do not believe that would be so. Many people, even if they did not qualify for national insurance benefit, would still be entitled to supplementary benefit.
Not everyone who was able, under the clause, to elect for self-employed status would necessarily do so. As I have just mentioned, there would be some disadvantages to consider. However, the cost in reduced national insurance contributions could be very substantial.
Would the benefits arising from the proposal justify the cost? I do not believe so. The clause would allow virtually anyone—for example, a civil servant—to achieve self-employed status. I do not believe that much would be achieved by that in terms of increasing employment, strengthening the enterprise culture or encouraging risk taking.

Mr. Watts: I am willing to concede that the new clause may be widely drafted and would allow too easy access to self-employed status, but I cannot see how a civil servant could take such status under the new clause. When he applied to the commissioners, they would surely find that he was a taxpayer who
gains earnings from one single employer under one contract of employment only; and
(b) such a contract of employment is evidenced in writing; and


(c) the taxpayer has the right under his contract of employment to be reimbursed with authorised out of pocket expenses.
If the commissioners so found, the civil servant could not claim to be self-employed.

Mr. Lamont: I hope that I am not caricaturing my hon. Friend's argument. It is certainly not my intention to do so. However, I was advised that such is the effect of the new clause.

Mr. Patrick Thompson: indicated dissent.

Mr. Lamont: My hon. Friend the Member for Norwich, North shakes his head. I can only say that having read the letters written by my hon. Friend the Member for Stirling, I did not think that that view was a caricature.
I emphasise that I wish to meet some of the genuine problems and anxieties that have been identified. However, I could not accept the new clause as drafted. I believe that, as drafted, it will have the effect that I have described.

Mr. Michael Forsyth: My right hon. Friend is caricaturing the new clause to some extent. We are trying to establish the principle that one can elect to be self-employed and that it is for the tax inspector to show why one should not be. At present, the individual has to go capin-hand to the tax inspector, who makes an arbitrary decision. My hon. Friend says that the criteria are clear and that there is plenty of case law. For the average small business man— let alone the average tax inspector —the situation is by no means clear. Some extraordinarily diverse decisions have been made. We are asking for clearly defined criteria. At present we have none. Recourse to case law is the basis of the present uncertainty.

Mr. Lamont: I certainly do not wish to caricature the new clause, but I firmly believe that it would go rather further than I now understand my hon. Friends would intend. I do not say that there are no other matters that we could consider. I do not say that the application of the present law causes no grievances to which we should address our minds. However, the new clause goes too far. It would make possible a cosmetic adjustment to self-employment rather than promote the real growth in self-employment that we all want. We want a framework that will easily and properly allow a genuine growth in self-employment. What we do not want — and this is the effect of the amendment — is a system which would merely allow people to be reclassified when, on objective standards, they were not self-employed. That is the effect of the new clause.
I stress that I have heard what my hon. Friends have said about how the present system operates. I am new to considering the issues raised here, but I undertake to look seriously at them. However, new as I am, I could not accept the new clause as drafted. I hope that, on the basis of what I have said, my hon. Friends will withdraw the motion. My hon. Friends the Members for Stirling and for Slough are great campaigners. I have no doubt that the campaign will go on, and who knows who might be converted.

Mr. Watts: I do not wish to push to a vote a new clause which might open the floodgates. It is not our intention to do that. I take some comfort from what my right hon. Friend has said, particularly about looking at some of the

problems that have been highlighted. Perhaps when we come to the Finance Bill next year we shall have a go with something rather more tightly drafted. We might even see the skill of the Treasury draftsmen with the Government coming forward with amendments to the law to meet some of the objectives that we have described.
I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 14

EMPLOYMENT BONDS

'1. Income from employment bonds shall he exempt from income tax and gains realised on a disposal of employment bonds shall not be chargeable gains.
2. Employment bonds are securities issued by a body corporate resident and carrying on a qualifying trade in the United Kingdom the issue of which has been approved by the Board.
3. The Board shall not approve an issue of securities for the purposes of this section unless satisfied that

(a) the proceeds of the issue will be used for the purposes of a qualifying trade carried on in the United Kingdom;
(b) the making of the issue can reasonably be expected to result in additional full time employment in the United Kingdom for a period of not less than three years being offered to and accepted by not less than one individual for every £50,000 raised by the issue before expenses;
(c) the securities will be issued to and held by a recognised institution in accordance with the regulations for the time being prescribed under subsection (5); and
(d) the amount raised by the issue will constitute a normal commercial loan within the meaning of paragraph (5) of Schedule 12 to the Finance Act 1973.

4. A trade is a qualifying trade if it complies with the requirements of paragraph 6 of Schedule 5 to the Finance Act 1983.
5. The Treasury shall by order made by statutory instruments prescribed regulations for giving effect to this section, for imposing conditions relating to the giving and withdrawal of approval under subsection (3) and containing such incidental or consequential provisions as may appear to the Treasury to be appropriate, and may from time to time in like manner vary the regulations so prescribed.
6. Any statutory instrument made in exercise of the power conferred by subsection (5) shall take effect subject to an affirmative resolution of the Commons House of Parliament.
7. This section shall have effect with respect to securities issued on or after 6th April 1986:.—[Sir William Clark.]

Brought up, and read the First time.

Sir William Clark: I beg to move, That the clause be read a Second time.
New clause 14 stems from an idea by a Mr. Gareth Jones and a Mr. David Soskin who wrote an excellent paper on employment bonds. The new clause seeks to help unemployment in Britain.
7.45 pm
Having said that, what the Government have done for unemployment is not widely publicised. The percentage of the population of working age in work in the United Kingdom compares favourably internationally. We have just over 65 per cent. of the working population in work whereas West Germany has 59 per cent., France 60 per cent. and Italy 54 per cent. Therefore, we have a better percentage of people in work than do our three main partners in the EEC. The average in the OECD countries


is 58 per cent. compared with ours of over 65 per cent. We are beaten by the United States which has 68 per cent. and Japan which has 71 per cent.

Mr. Michael Meadowcroft: Is not the particular difference that the proportion of long-term unemployed is far higher in Britain than in any of the countries that the hon. Gentleman has mentioned? Is not that the particular problem to which we must address ourselves?

Mr. Deputy Speaker (Mr. Harold Walker): Order. The new clause relates to employment bonds. I hope that the debate will not extend to one about unemployment.

Sir William Clark: I am grateful to you for your protection, Mr. Deputy Speaker.
The employment bonds are to help unemployment. The Government have taken measures to help the long-term unemployed, to whom the hon. Gentleman has referred, such as the restart scheme, the community programme, the new worker schemes, the two-year youth training scheme, the job release schemes, the adult training schemes and the enterprise allowance. One would think, to hear Opposition Members, that the Government were doing nothing about unemployment. I remind the House that the Government are spending over £3,000 million of taxpayers' money to help unemployment. The business expansion scheme has also created many new jobs throughout the economy since March 1983. It is worth putting on record that nearly 1 million new jobs have been created by the various Government measures.
However, having said all that, there is still more to be done. One of the snags in our economy today is the high cost of borrowing. If one compares the cost of borrowing in Britain with that of our competitors, one sees that Germany has a well-developed debt market whereby long-term loans of 10 years and more are available to industry at low rates of interest. The clearing banks in Germany take equity positions in various industrial companies and that must he of assistance to German firms because there is no interest element within that. The United States of America has for many years had something called industrial development bonds, which are similar to the employment bonds that I am about to advocate. Japan, another of our competitors, has long-term low-cost finance. I do not have to remind the House that the economies of those countries is buoyant. France, one of our partners in the EEC, has direct interest subsidies.
When we look around at our international competitors we can see that we lose out on the cost of financing a development. Moreover, the cost of borrowing in the initial stages of a business is vital. Once a business is established it can afford a higher rate of interest because profits are being generated. But in the initial years it is vital for the cost of money to be as low as possible.
I hope that my hon. Friend the Economic Secretary will not bother to criticise the wording of the new clause because all that I am asking him and the Government to do is to accept the spirit behind it.
The idea of the employment bond is to channel investment into genuine job-creation projects. Each bond will be issued by one of the clearing banks. It is suggested that for any one project there should be a maximum bond of, say, £10 million, although 1 am not arguing for that figure. The hank would create the bond and then sell it to investors. If it were sold to 100 people, they could take

£100,000 each, or whatever it may be. Consequently, the money lent to the business would be covered by the employment bond.
There is one stipulation, and that is that the money lent from the bond would go to a project whereby genuine jobs would be guaranteed for three years and no job should cost more than £50,000 of that investment. That would mean that if there were a maximum of £ 10 million for one project, 200 jobs would be created. It is true that £50,000 per job is extremely high. The American experience is that in practice the figure works out very much lower. But, if one takes the worst, it would create 200 new jobs.
In order to make the bonds attractive the Government must give the interest on the bonds tax-free. If it were given tax-free any investor, particularly those at the higher rates of tax, would be attracted to them. Remember, the bonds must be directed to a genuine project which will create long-term jobs.
If one takes the example of, say, 100 units going into a bond, a taxpayer at the maximum rate of 60 per cent. will, if he gets a 10 per cent. return on his 100 units, receive 10 units of interest. But the Exchequer will take six of those units and he will be left with four. The net interest that he receives will be 4 per cent. Consequently, that investor cart not only afford but it would be an incentive for him to lend his money at 6 or 7 per cent. tax-free.
We must remember that the individual employment bond scheme would be run by the banks. The banks would guarantee repayment to the investor. There could be a secondary market — like the Euro dollar market — in which an investor could buy and sell his bonds as and when he wished. I am sure that that would be an advantage. The Chancellor of the Exchequer and the Government should experiment with that. I suggest that the experiment should be £1 billion worth of employment bonds. I remind my hon. Friend the Minister that £1 billion worth of employment bonds would be about one eighth of the total manufacturing investment in the economy.
Before the Inland Revenue approved a scheme, it would have to be satisfied that it was a genuine project, that it created new jobs and, of course, that it was underwritten by the banks. If one considers a £10 million project, and assumes that the interest rate on it is 10 per cent., any individual or group of people investing that sum would collect £1 million a year in interest. If those people pay tax at the maximum rate, the Chancellor of the Exchequer would take 60 per cent. in tax. The loss to the revenue if the interest was tax-free would be £600,000 on £10 million invested. If one multiplied that to £1 billion—the sum involved in the experiment—the loss to the Exchequer would be £60 million. But we must remember that that loss of £60 million would create 20,000 new jobs. If one considers some of the job-creation schemes with which successive Governments have dabbled, that figure is small.
How successful will the scheme be? I can only remind my hon. Friend of the experience in the United States of America. An important report published recently by leading economists in the United States maintained that the success of the industrial development bond in the United States— no one can say that its economy is not buoyant—was shown by an increase of 4·75 per cent. in its gross national product. That 4·75 per cent. increase occurred between 1980 and 1985. If one could extrapolate that to the position in Britain, it could mean 1 million extra jobs in five years.
Employment bonds would be especially attractive to companies that cannot get off the ground, especially in low-return industries such as textiles, light engineering, food manufacturing and office equipment. In those industries there is a low rate of return on the capital employed. Consequently, with the base rate at 10 per cent., although one cannot borrow money at 10 per cent. anywhere and one is bound to pay two or three points above the base rate—if it is a new business, the chances are that it will pay 13 per cent.—interest charges are an enormous drain on a low-return industry, even if it is expanding.
One can compare the purchase of capital equipment in America, where, with an industrial development bond, one could borrow £1 million, £2 million or £10 million—whatever the cost of the plant and machinery was—and repay it over 10 or 15 years, with the position in Britain, where no financial institution would give those terms. The best one could get would be a leasing arrangement perhaps over five years. If an American competitor borrows £10 million, and he must pay it back in 10 years, he must find £1 million plus interest each year out of the new venture. In Britain, a £10 million loan for a similar plant to be repaid over five years means that a business man has the millstone round his neck of a £2 million repayment each year plus a much higher rate of interest than is payable abroad.
The scheme is a much better incentive for the Government to create employment at a much lower cost. No extra bureaucracy is involved except for the Inland Revenue's approval. The Inland Revenue must consider three things. Is it a genuine project? Will it create jobs? Is it underwritten? Those are three simple points. The scheme involves no bureaucracy because private enterprise will take the responsibility for its administration and the risk.
The scheme has worked well in the United States, and with unemployment at its present level it is another idea to help to solve the problem. The Government have done much to contain unemployment, despite the fact that we have been suffering, as everyone in the House knows, from many more people of school-leaving age entering the labour market and fewer people retiring.
I urge my hon. Friend not just to dismiss the scheme.
I am sure that he will not criticise the wording of the clause. The spirit behind the clause is to attract investment into genuine businesses which will create genuine jobs.

Dr. Oonagh McDonald: Labour Members share the anxiety of the hon. Member for Croydon, South (Sir W. Clark) about unemployment in Britain. However, he should note that in Britain the underlying trend of unemployment is still moving upwards and that there are I million fewer people in work now than there were in 1979 when Labour left office. Since 1979, Britain has lost more jobs more quickly than the other EEC countries put together. Since 1979, jobs have been destroyed at an alarming rate. The hon. Gentleman is right to recognise that it is a serious problem and to attempt to provide a solution. Part of the analysis that the hon. Gentleman proposed is accepted by the Labour party, but not by the Government. We agree with the hon. Gentleman's statement that high interest rates are a strong disincentive

for investment and especially for investment in job creation.
There is an urgent necessity for investment in job-creating projects. The hon. Gentleman is right to urge the Government to make such investment. We would propose different measures for job creation from the ones that he has proposed in the new clause.
I have two more points to make about the new clause. The hon. Gentleman compared it with the business expansion scheme. I do not suggest that it would operate in exactly the same way, because, of course, it would not. That was not the best comparison for the hon. Gentleman to choose. The Peat Marwick report on the operation of the business expansion scheme shows clearly that, at best, that scheme has maintained some jobs rather than created new jobs. If the hon. Gentleman examines the figures, he will discover that that is the case.
Another problem with the business expansion scheme is that it benefits higher rate taxpayers. Since its inception, the Government have had to introduce one tax avoidance measure after another to prevent the use of the business expansion scheme, not for the purpose for which the Government intended — job creation — but as a tax avoidance measure by higher rate taxpayers. I can see that the same difficulty may arise for his scheme which, as he suggested, would encourage higher rate taxpayers to invest in employment bonds.

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Sir William Clark: It is surely illogical to assume that. If we are endeavouring to channel investments into employment, creating jobs, all the Government can do is to give fiscal incentives to a potential investor. Those who are paying a higher rate of tax are obviously the potential investors.

Dr. McDonald: It is not at all illogical to make the point. Fiscal incentives cost the Government money. If fiscal incentives are designed for job creation, the Government need to see to it that job creation results or there is no point in giving fiscal incentives because the Government will be giving yet another tax handout.
The hon. Gentleman himself drew a comparison between the business expansion scheme and his proposal. The business expansion scheme has often been misused, as the Minister knows. It has been used for tax avoidance purposes rather than for new investment that will lead to job creation. One has only to look at agricultural property investment and the investment in fine wines that took place under the business expansion scheme. It is difficult to ensure that fiscal incentives like this go towards job creation.
I share the hon. Gentleman's concern that job creation should be the result. The method that he has chosen in proposing this kind of tax incentive for investment in employment bonds is a dubious one. He suggested that it would not cost a great deal of money. However, I shall be interested to hear the Minister's figures based on the suggested amount of £1 billion in bonds of this kind. Even if the cost is only £60 million, that money must be used for job creation. That is why, although naturally sharing the hon. Gentleman's objectives, the Opposition are dubious about the method that he has proposed.

The Economic Secretary to the Treasury (Mr. Ian Stewart): First, I compliment my hon. Friend the Member


for Croydon, South (Sir W. Clark) for giving us an opportunity to debate the interesting idea embodied in the new clause. He drew attention to the number of jobs generated in the economy in the last few years, but rightly said that we are all anxious to ensure that there should be as many ways as possible of encouraging the creation of new jobs. That sentiment, I think, is shared by hon. Members on both sides of the House.
My hon. Friend said that the high cost of borrowing in the initial stages was one of the greatest deterrents to projects that are likely to give rise to new job-creating businesses. There is certainly truth in that. It is very encouraging that longer term interest rates have for the first time in many years come down into single figures. Although there is a margin to pay on top of the strict money market costs, it has not been possible for companies to work on the basis of gilt-edged stock yielding less than 10 per cent. for many years now. If that has not created a climate in which it is easier for all businesses that want to expand to raise longer term finance, it has certainly been a substantial step in the right direction, and it is one of the important achievements of our financial policies in the last few years.
My hon. Friend may have guessed that I would not feel able to recommend to the House that the new clause be accepted. I do not want to attribute to him any great powers of clairvoyance, but there is a certain similarity between this debate and one that took place a year ago at a similar stage of the Finance Bill. I recall that the hon. Member for Thurrock (Dr. McDonald) was involved and, although I was not called upon to respond, my right hon. Friend the former Financial Secretary did. The debate was opened by my hon. Friend the Member for Kettering (Mr. Freeman), and he made a number of these points. As that debate is on the record, I looked to see whether any of the arguments had changed. Following that, I had the opportunity of a meeting with my hon. Friend the Member for Lewisham, East (Mr. Moynihan) and the two gentlemen, Mr. Jones and Mr. Soskin, to whom my hon. Friend referred. I had an interesting discussion with them.
I shall certainly follow my hon. Friend's request that I should not dwell too much on the wording of the new clause, but deal rather with the spirit of it. Indeed, I go even further and promise not to read the Treasury brief that has been put in front of me for this occasion. I do not know that it would necessarily be conducive to the conduct of the debate at five minutes past eight this evening. I do not wish to cast any aspersions on the Treasury briefs, because they are marvellous documents. All those of us who have the opportunity to rely on Treasury briefs will bear witness to that. The points that my hon. Friend makes are really general, not detailed, about the wording of the clause, and I shall therefore try to deal with them.
The first and most important point is whether relief of this kind would be an economic use of tax revenues forgone. Would it be sufficiently targeted on the type of companies that my hon. Friend has in mind? Having thought about this, when I met my hon. Friend the Member for Lewisham, East and again when my hon. Friend the Member for Croydon, South tabled the new clause, I could not convince myself that the degree of targeting of a proposal of this kind would come anywhere near a sufficiently satisfactory level to justify the introduction of such a wide-ranging relief. My hon. Friend said that these should be specific projects of a kind that would lead to the generation of new employment, in

practice, but I think that it would be a great deal more difficult to achieve that with any degree of confidence and certainty in order to justify such a relief.
My second anxiety is that a great deal of investment that was going to take place anyway could be organised in such a fashion that it would qualify for relief under these arrangements. This is a factor that has always to be taken into account. Not only is there potential advantage to new activity—what is known in the jargon as additionality— but there is also the possibility that, unless such reliefs are very carefully defined, there is a great risk that, within the law, a great deal of activity that would otherwise have taken place but would not have come within the ambit of relief of this kind could be organised in such a way that it did come within its scope. That would mean an Exchequer cost that would not be related directly to the purpose that my hon. Friend has so rightly said deserves our attention.
My hon. Friend went on to say that the idea of these bonds has been inspired to some extent by experience in the United States and other countries. He made a general point about other countries, but one has to look at the financial conditions in each country and at existing markets. It is not easy to extrapolate from one country to another, regardless of the surrounding circumstances and taxation systems for companies, and say that they would operate just as efficaciously in another country.
My hon. Friend concentrated on the United States. Therefore, I ought to do so, too. Tax relief in the United States operates in a way that is bound to be popular with some of those who are involved. It is popular with the recipients because this money is a subsidy. Tax relief makes it possible to quote a lower rate of interest. Therefore, it is popular with those who are able to invest and gain a gross interest on bonds that are not liable to tax. It is also popular with those states in the United States that operate this system. They are able to offer tax subsidies to enterprises in individual states, but the cost falls on the federal Government. Ultimately, therefore, the federal Government have to bear the loss of revenue and to weigh up whether they believe they are getting a reasonable deal. The latest United States Treasury view is that
inefficient, economically distortive, and ill-targeted tax expenditures of this type should be eliminated.
Preliminary steps towards that end have been taken in the United States.
One of the reasons why the United States came to that conclusion was that a significant proportion of the tax relief was being given as a subsidy to financial intermediaries or to higher rate taxpayers. I am sure that that would happen in this country, because our rates of personal tax are higher than those in the United States. If approximately one third of the cost in the United States was used not for the creation of new jobs but as a subsidy for those other parties, I do not think we could expect that the percentage that leaked out in that way would be any lower. Indeed, it could conceivably be higher.
The United States authorities concluded that for every $2 of interest costs that are saved by the borrower, the federal Government forgo more than $3 of revenue. That is not a formula upon which we could base a similar provision. That leaves aside any possibility of exploitation or lack of targeting to which the hon. Member for Thurrock alluded. A loan guarantee scheme or a business expansion scheme needs to be as closely targeted as


possible. It is inherent in any such scheme that one has to look at the limits of the target and to maintain vigilance, because the temptation for it to be used for purposes other than those that we have in mind are bound to be great.
If an experiment costing £1 billion were carried out—with an interest rate of 10 per cent. and with only top rate taxpayers at 60 per cent. involved—we should be talking of £60 million. However, it is almost impossible to quantify the cost because we do not know what rates of interest relating to the credit worthiness of the borrowers would be charged on particular bonds, and we should not know what were the individual tax rates of those who put
Finally, my hon. Friend said that the experience of this scheme in the United States was that the gross national product increased within a few years by about 4·75 per cent. That is a huge figure if it can be attributed to a single measure of this kind. The paper that includes these figures refers to a sum that is quoted in dollars rather than to a percentage of GNP. The GNP percentage is nearer 0·1 per cent.
On the evidence of the figures and the American experience, I do not feel that a case has yet been made for a provision of this kind. We are always anxious to find ways in which to encourage businesses to create more job opportunities. Along the lines of employment bonds there may be a formula that would work and be economical for the general body of taxpayers, but I regret that the formula that is contained in this new clause has not found it.

Sir William Clark: That was a very disappointing reply, particularly as my hon. Friend prefaced his remarks by saying that he would not read the Treasury brief, and then proceeded to quote from the Inland Revenue brief.
My hon. Friend took me to task at the beginning of his reply on bank interest. I know that interest rates have been reduced and I congratulate the Government on that reduction. However, the idea behind employment bonds, as I tried to point out, is to obtain a lower rate for genuine projects. I do not accept my hon. Friend's assessment. If there are loopholes, it is up to the Inland Revenue to close them, as it did with the business expansion scheme. Of course, these ideas will be exploited, but it is up to the Inland Revenue to close the loopholes.
I said that the Inland Revenue would closely monitor employment bonds. The fact is that £60 million would create 20,000 jobs. The figure may be less or it may be more, but I believe that my hon. Friend agrees that a £1 billion issue of investment bonds would cost £60 million, and the risk would be taken by the banks.
In view of what my hon. Friend has said, it is obvious that this year we shall be unable to push the matter further. However, I assure him that the matter will not be forgotten and that it will be raised again. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 19

BINGO DUTY (No. 2)

`(1) Schedule 3 to the Betting and Gaming Duties Act 1981 (exemptions from bingo duty) shall have effect subject to the following provision:—
(2) In subsection 2(1) (inserted by Finance Act 1982) there shall be inserted the following paragraph—

"(aa) the said bingo is played as an activity of a non-profit making members' club or society"; or'. — [Mr. Greg Knight.]

Brought up, and read the First time.

Mr. Greg Knight: I beg to move, That the clause be read a Second time.
I am sure that it has not escaped your attention, Mr. Deputy Speaker, that this clause has all-party support. Appended to the clause are the names of more hon. Members than are appended to any other new clause. The clause would remove all non-profit-making clubs from the scope of bingo duty in respect of bingo being played as an activity of the club. If the new clause were agreed to, it would cost the Treasury £2·7 million. For that reason, the House will want to know why I urge that the new clause should be approved.
Since 27 September 1982, non-profit-making clubs have been obliged to pay bingo duty in respect of bingo that exceeds certain thresholds. The decision to make clubs liable to duty is not, I understand, a cornerstone of the Government's economic strategy and it does not relate to any central Treasury principle. It was introduced, firstly, as a result of pressure from profit-making organisations that felt that they were facing unfair competition. I do not accept that point.
Secondly, I understand that at that time the then Chancellor of the Exchequer was experiencing some difficulty with Conservative Members who did not accept the Government's proposal to increase the duty on derv. Other ways had to be examined of raising finance. Because of the circumstances in which non-profit-making clubs were brought within the scope of the tax, I hope that my hon. Friend will accept that there was less consultation on this issue than I am sure he would have wished. If the new clause is accepted, non-profit-making clubs will be exempted from bingo duty.
The distinction between profit-making organisations and non-profit-making organisations is that the profit from bingo played in clubs such as Royal British Legion clubs, Conservative clubs and Labour clubs is usually used to finance other activities and does not go into the pockets of owners and shareholders.
In the Financial Times on 17 June there was an article headed:
Ladbroke sells Rank its bingo clubs in £67m deal.
The article reads:
Rank Organisation yesterday become the largest licensed bingo hall operator in the UK with the agreed acquisition of Ladbroke Group's 36 bingo clubs and 42 high street amusement centres in a deal worth L67·5m.
Quite rightly, these clubs have to pay tax, and I do not seek in any way to alter their tax liability, but non-profit-making clubs should be exempt. Mr. Deputy Speaker, you represent an area of Doncaster and you know that nonprofit-making clubs in Great Britain provide leisure activities for approximately 10 million people. In addition to providing entertainment, the clubs often sponsor and provide sporting activities.
In my part of Britain, the east midlands, many professional musicians got their first start in the clubs. If a youngster who is learning to play an instrument wants to go on stage and perform before an audience, often the only outlets—the only places which can give him an opportunity to do so — are the working men's clubs, Royal British Legion clubs or Conservative clubs.
Boxers like Tony Sibson often receive their first encouragement by way of the help given by non-profit-making clubs. Those clubs sponsor and assist young people and it is the modest bingo profit that is invariably used to help to pay for that sort of activity, rather than lining the pockets of proprietors.
In many areas the facilities in non-profit-making clubs are of social benefit to the communities that they serve. In such places bingo is primarily a fun game, a sort of low-powered gaming. Some people might even say it is a form of no-power gaming. Members do not gamble for high stakes of the sort that we see in the clubs operated for profit, many of which have taken over disused cinemas and other high street premises.
Many hon. Members may ask why this new clause is necessary. They may say that, after all, the present law provides for exemptions where the ticket sales from bingo fall below a certain level. I shall explain to the House why the present exemptions from bingo duty are inadequate and unfair.
At present, non-profit-making members' clubs are required to register with the Customs and Excise when prize money or money collected for the purchase of bingo tickets, whichever is the greater, exceeds £400 in a day or £1,000 in a week. When a club exceeds either of these thresholds it must within the following five days register for bingo duty with the local Customs and Excise office. Duty is then payable at the rate of 10 per cent. of the prize money or ticket money, whichever is the greater, in that week and in the following 12 weeks. Payment of the duty continues until 12 consecutive weeks occur in which the thresholds are not exceeded. At that time the club has a right to be deregistered.
In a normal week the majority of unlicensed clubs—that is, working men's clubs — do not reach the thresholds. Usually it is only in weeks during which a bank holiday occurs and in which, understandably, the number of club functions is greater that the threshold is reached and the club needs to register. The clubs find that, because bank holidays occur in virtually each quarter, many of them reaching the thresholds on perhaps only five, six or seven weeks of the year require to be registered for the whole of the year.
I have a letter dated 10 April from Her Majesty's Customs and Excise. It is addressed to the secretary of the Manningham ward Labour club, Whetley lane, Bradford, west Yorkshire. The letter could equally have been written to a Royal British Legion club, a Conservative club or a Liberal club. In the letter, the senior officer says:
Dear Sirs … I am writing in connection with our recent visits and discussions regarding the bingo played in the Club and the liability to Bingo Duty when the small-scale bingo exemption limits are exceeded.
Examination of your Bingo Duty Finance Record Book has shown that the small-scale bingo exemption limits were exceeded during weeks ending 30 December 1984, 6 January 1985, 29 December 1985 and 5 January 1986 thus rendering all the bingo played in the Club during those particular weeks, and in each of the twelve succeeding weeks, liable to Bingo Duty.
The senior officer goes on to tell the club that it is liable for the sum of £2,183·77.
I draw this matter to the attention of the House to show that the mechanism not only causes problems in terms of record keeping, but is inequitable because in many cases clubs breach the threshold in one week, a week in which there is a bank holiday, and are then obliged to pay bingo duty for the following 12 weeks. If the trigger mechanism

operates on every bank holiday, the club may find that it has to be registered all year and has to pay bingo duty during that time when for most of the year the income from bingo falls well below the thresholds.
The other difficulty experienced by non-profit-making clubs is that, unlike the organisations that are making money for shareholders, the non-profit-making clubs are managed by unpaid volunteers and quite often the extra paper work is unduly onerous. Many clubs are finding it difficult to get officers to serve on the committee; that is because of the onerous duties placed upon them by the provisions.
I hope that the House will accept the new clause and will exclude all non-profit-making organisations from the ambit of bingo duty. If my right hon. Friend the Minister feels that he cannot accept the new clause as drafted, I ask him to consider another point. Before 27 September 1982 non-profit-making clubs were exempt from the bingo duty provisions. They were brought within the provisions on that date, as I have said, following pressure from the commercial bingo clubs.
I have looked into the matter and have found that no non-profit-making club was consulted before such clubs were brought within the ambit of bingo duty. I do not entirely blame the Government for that, because at that time the non-profit-making clubs did not have an umbrella organisation by which they could be represented nationally and through which they could let their views be known. That is no longer the case, because in the last couple of years the Committee of Registered Clubs Association was formed specifically to look after the interests of the non-profit-making clubs and especially to make representations about legislation that affects the club movement.
If my right hon. Friend the Chief Secretary cannot accept the new clause today, I hope that he will give an assurance that during the next 12 months, and before next year's Finance Bill, he will meet members of the association, or at least listen to their views. If he gives that assurance, I may consider not pressing the new clause to a Division. But given the difficulties that I have outlined to the House, I hope that my right hon. Friend will at least be prepared to enter into a dialogue with the Committee

Mr. Meadowcroft: I rise to underline the point made by the hon. Member for Derby, North (Mr. Knight). This is, indeed, an all-party matter. Sometimes, particularly when we discuss Treasury matters, hon. Members find that they have a collective opponent in the form of Treasury Ministers. We have to gather our strength and concentrate on the arguments that the Treasury may throw up. In this instance, we must point out that the income involved is crucial to the survival of those clubs.
The new clause may seem to involve a small issue, but I am glad that it was selected. It has enabled hon. Members to point out just how crucial non-profit-making members' clubs are to their communities. In many areas, they are vital to the fabric of society. They are one of the few institutions to be run by ordinary working people, for their benefit. It is important to stress that we are not dealing with clubs where people legitimately and deliberately wish to make a profit or with the sort of clubs that the police are often worried about, which just try to get round the licensing laws.
We are dealing with clubs that are run by members for the benefit of themselves and that of their local community. It is thus important to discover how best they can be assisted. During a recession, they are particularly important to the fabric of society. However, I doubt whether many clubs are now highly profitable. Of the 25 or so in my constituency, I imagine that very few of them are financially viable. If we could lift even a small burden from them, it might help them and their community to survive.
If the law on charities was not so restrictive, many of those clubs—if not all of them—would probably qualify to be regarded as charitable. Much of the work that they do is akin to being charitable. Only today a letter from the secretary of a club in my constituency raised the problem of one of his members in relation to the DHSS. That is typical of the sort of work carried out by clubs on behalf of their members.
I am not a great bingo lover, but as a politician I have learned over the years that it is fatal to stop bingo going on in a local club. In this instance, I doubt whether the loss of income to the Treasury will break the Government, but that income makes a difference between survival and closure to some of those clubs. Therefore, I hope that the Chief Secretary understands the problems faced by many of our clubs, and that he will respond sympathetically to the new clause.

Mr. Terry Davis: Hon. Members on both sides of the House—or perhaps I should describe them as all-party Members — have supported this new clause, and I listened to the speeches made with great care and interest. In fact, I have a particular interest to declare in that, no doubt like the Chief Secretary, I am a member of several clubs in my constituency. I certainly endorse the remarks made by the hon. Members for Derby, North (Mr. Knight) and for Leeds, West (Mr. Meadowcroft) about the good work done by non-profit-making clubs.
I have some sympathy with non-profit-making members' clubs and with the problems that they encounter in the present economic climate. However, I am not sure that I can support the abolition of the duty on bingo in clubs. I was impressed by the arguments of the hon. Member for Derby, North, who said that the measure would cost only £2·7 million. I can see that that is a small amount of revenue for the Treasury to lose. But I am concerned about the precedents that the new clause would create. Consequently, I await with interest the Chief Secretary's reply.
I accept what the hon. Member for Derby, North said about the problems of registration. It seems grossly unfair that clubs should be required to register for 12 weeks after every bank holiday and so are always subject to that tax. But perhaps we should be pressing the Treasury to do something about the problem of registration rather than pressing for the abolition of bingo duty in respect of nonprofit-making members' clubs. However, that is a matter for the consideration of those hon. Members who are most concerned about this issue on behalf of the all-party group.
On behalf of the Opposition, I express some sympathy with the pleas that have been made, but I am not prepared to recommend that my right hon. and hon. Friends go into the Lobby if the new clause is pressed to a Division—at least not until I have heard the Chief Secretary's views.

The Chief Secretary to the Treasury (Mr. John MacGregor): I know of the considerable interest that has been shown in this subject by my hon. Friend the Member for Derby, North (Mr. Knight). He has demonstrated it not only by pressing Treasury Ministers in correspondence on the matter, but by raising the issue in the House tonight. I entirely support him in his commendations of the worthy work done, and social contribution made, by the non-profit-making clubs. I also fully understand the point made by the hon. Member for Leeds, West (Mr. Meadowcroft) about those clubs being crucial to the fabric of society in some parts of the country. Indeed, the hon. Member for Birmingham, Hodge Hill (Mr. Davis) made the same point. Thus, there is all-party agreement on that.
The hon. Member for Hodge Hill said that he would wait until he had heard what I had to say before deciding what action to take. That is the first time that he has invited me to make up his mind for him, and I hope that he will do so again. As my hon. Friend the Member for Derby, North rightly said, before September 1982 any club promoting bingo in accordance with sections 40 or 41 of the Gaming Act 1968 was automatically exempt from bingo duty. Following complaints from commercial clubs that they were facing unfair competition from exempt social clubs, the whole basis of exemption was changed in the Finance Act 1982, and then modified in the Finance Acts 1983 and 1984 so that there is now exemption for clubs where there is a £400 daily limit and a £1,000 weekly limit for stakes as well as prize values.
My hon. Friend the Member for Derby, North advocates removing all non-profit-making clubs from the ambit of bingo duty. If exemption was given to all members' clubs or societies of this sort, the commercial promoters of bingo would again face serious competition from the clubs. The number of commercial clubs has declined year after year, and if members' clubs did not have to pay duty on similar turnovers—I shall come to that point in a moment — that decline would be accelerated.
It is also possible that members' clubs, which may have restricted their playing of bingo in order to avoid breaking the exemption limits, would increase the amount of bingo played. Some hon. Members might argue that that would be a very good thing for the clubs. I can see that argument, but it would also increase the competition with commercial clubs.
Some hon. Members may know that in its pre-Budget representations the Bingo Association of Great Britain suggested that the exemption for members' clubs should be further restricted, as it still regards those clubs as representing competing interests. The Government have recently acknowledged the industry's difficulties by facilitating the introduction of a national bingo game. The problem is that the existing exemption limits are reasonably generous. In bringing non-profit-making members' clubs within the scope of the duty, we are talking about regular, high turnover bingo at what is really a commercial rate. I understand that the stake figures for quite a number of working men's clubs go up to £1,700 or £1,800 a week. I think that the accurate, up-to-date figure is 363 for the number of non-exempt, non-profit-making clubs. That is a very small proportion of all the clubs and societies, but in comparison with the commercial operators it is quite large. There are 513 commercial operators at present, involving some 900 outlets altogether. On the assumption that the clubs and societies


have one outlet each, they represent nearly one third of the total number of commercial outlets, and so there is a point to be made about commercial competition.
Commercial outlets have been under heavy pressure. Nearly 300 outlets have disappeared in the past four years. There is a question of balance. I would like to give the last figure so that all the figures have been given to the House. The cost of revenue lost would be some £3 million. That is a similar figure to that mentioned by my hon. Friend the Member for Derby, North.
A balance must be achieved. The changes made in 1982 and 1983 were intended to ensure fair competition between the members' clubs with a comparatively high turnover relative to the bingo promoters and the commercial bingo promoters. I am not sure that the case has been made to go back on the decisions that were taken then. There would be strong representations from those who make a profit out of bingo and who also provide a leisure facility in the community.
I would like to consider the specific points raised by my hon. Friend the Member for Derby, North. I have stated the reasons why we should not accept his new clause, which would sweep away all the requirements for bingo duty from clubs and societies. My hon. Friend made two specific points. First, he said that it is the mechanism which causes the problem. The hon. Member for Hodge Hill followed that point. My hon. Friend said that the mechanism caused problems in connection with record-keeping. I understand the problem of keeping paperwork for volunteers. However, any well-ordered club will have to carry out a considerable amount of record-keeping because the Customs and Excise, legitimately, in fulfilling Parliament's obligations, will go to clubs and societies from time to time and check whether they are above the exemption limits. A certain amount of paper-work would therefore have to be carried out.
My hon. Friend the Member for Derby, North made a second point concerning the difficulty about the way in which the exemption limit is established. He stated that there are specific parts of the year — for example, holiday periods — when some clubs suddenly find themselves above the limit and having an exceptional turnover for limited periods in the year. Under the present system, the clubs will have to register and pay duty for three months thereafter.
That provision was introduced because it would not have been practicable to treat each day or week separately. The new provisions were aimed at giving clubs the choice. It was reasonable to assume that most clubs would make the choice either to have bingo on a sufficiently substantial scale to be above the exemption limits for most parts of the year and accept that they would have to pay bingo duty, or they would wish to remain exempt throughout the year. In the latter case, when clubs ran into the specific problem—and there is evidence that many clubs do this—of the kind identified by my hon. Friend the Member for Derby, North of a high turnover in Christmas week or whenever, they could deal with that by reducing stakes in the Christmas period to keep below exemption limits. I am told that the number of clubs that are non-exempt has remained fairly static. That suggests that many clubs have been doing that.
Nevertheless, I accept that that does not meet the point. I stress that because it might be useful for some clubs to know that that is one way out of the difficulty. However, I can make no commitment to my hon. Friend the Member

for Derby, North beyond saying that I would consider his point and see whether there is a way of dealing with it to meet the problem of the very high turnover in specific parts of the year. I do not make a commitment to bring some measure on that point back to the House next year. I would like to consider it and I am grateful to my hon. Friend for raising the matter in the House.
8.45 pm
My hon. Friend's other main point related to the umbrella organisation — the Committee of Registered Clubs Association. I would obviously be willing to receive representations about that. Whether we need to have a meeting is a matter I must leave open. These days I lead a hectic life and if necessary one of my hon. Friends may have to deal with that. I cannot make a commitment to regular meetings but I would be willing to receive representations. If we considered that a meeting would be sensible, we would have one.
I especially welcome the idea of an umbrella organisation. I would be happy for my Department and for the Inland Revenue to engage in discussions with such an organisation. In the past there have been difficulties in explaining to many smaller clubs the position on bingo duty and difficulty in publicising that position. There have been difficulties in dealing with arrears of duty when a club has strayed over the limits.
There is merit in having a body which represents, if not all clubs—as that would be difficult to achieve—many more than previously. I welcome my hon. Friend's point about the umbrella organisation and I would certainly welcome the opportunity to receive representations arid consider certain points. I hope that I have explained why the new clause goes further than I would be prepared to recommend to the House that we should go tonight.

Mr. Terry Davis: I must thank the Chief Secretary for his comments as he has helped to make up my mind. He has been very forthcoming to his hon. Friend the Member for Derby, North (Mr. Knight) in agreeing to receive representations and to meet representatives of clubs. The main point appears to be the requirement for registration based on a limited experience of high turnover. There are several ways in which that could be tackled. Instead of being required to register if turnover exceeds a limit in one week, the limit should have to be exceeded for three consecutive weeks or perhaps for a certain number of weeks in a year, which would take care of the peaks. There are ways around that problem. I am grateful to the Chief Secretary for agreeing to receive representations and perhaps we can return to this point next year. In the meantime, I can assure the hon. Member for Derby, North that if the Chief Secretary does not have time to meet representations from clubs the Labour party Front Bench would be delighted to do so.

Mr. MacGregor: Long may the Labour party Front Bench have plenty of time on their hands to do that.
The hon. Member for Birmingham, Hodge Hill (Mr. Davis) has made a reasonable point. We ought to see whether the mechanism is causing unnecessary problems and if there is a way around that. On that basis, I hope that my hon. Friend the hon. Member for Derby, North (Mr. Knight) will understand why I cannot accept the new clause and I hope that he will be prepared to withdraw it.

Mr. Knight: I am grateful for the wide measure of support that I have received on this issue from both sides


of the House. Unfortunately, many of the hon. Members who supported the clause were unable to be present this evening. I do not know whether they are out playing bingo somewhere, but I have received their apologies for absence.
I am also grateful for the comments of the hon. Member for Birmingham, Hodge Hill (Mr. Davis). He is correct to say that it is primarily the mechanism which is causing many of the clubs difficulty. I was sorry to hear that the hon. Member for Leeds, West (Mr. Meadowcroft) does not like bingo. However, as the House will know, the hon. Member for Leeds, West is a musician. He must therefore appreciate that bingo in clubs has given employment to many musicians because without bingo in many cases there would be no way of funding entertainment in clubs.
I am extremely grateful to my right hon. Friend the Chief Secretary to the Treasury. I do not necessarily agree with his comments on why he cannot accept the clause. I still believe that there is some merit in the clause. In view of my right hon. Friend's generous comments, however, and the welcome sign that he would be prepared to receive representations and, if necessary, to attend a meeting, I am sure that all concerned with the clubs movement will warmly welcome his comments. In the spirit of my right hon. Friend's gesture, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 21

LUNCHEON VOUCHERS

`In subsection 4 of section 36 of the Finance (No. 2) Act 1975, in the definition of "voucher", after the words "this Act", there shall be inserted the words "or a voucher exchangeable and only exchangeable for food to be consumed on the premises in which the voucher is exchanged or freshly prepared for immediate consumption, except to the extent (if any) by which the value of the voucher or vouchers given to the employee exceeds £1 for each working day."'.— [Mr. Michael Cocks.]

Brought up, and read the First time.

Mr. Michael Cocks: I am much encouraged by the response of the Chief Secretary to the last clause. I therefore beg to move, That the clause be read a Second time.
Out of consideration for the House, I did not take part in the previous debate, although I was sorely tempted to do so as I am chairman of the Bristol, South Labour club and felt a great affinity with much that was said. It may not surprise the House to learn that relations between the Bristol, South Labour club and the Bristol, South constituency party are rather strained. In spite of this unfortunate lack of identity of views, I am glad to say that, unlike some of the clubs that have been described tonight, the Bristol, South Labour club is thriving and prosperous and is prepared on occasion to donate money to causes which we consider to be worthy.
I am pleased to introduce the new clause because by doing so I am giving the House an opportunity to consider and possibly to rectify an anomaly which discriminates especially against small firms, young people and lower paid workers. These are three groups which the

Government, and particularly the Chancellor of the Exchequer, are always telling us that they are most anxious to assist.
The present position is probably known to right hon. and hon. Members. Everyone who is given a luncheon voucher by his employer has to pay tax on every penny that he receives above 15p a day. That tax has to be paid by the employee; it cannot be paid for him by the employer. This is in strong contrast to the treatment of those employees who eat in company canteens, which are frequently heavily subsidised. They do not have to pay any tax on the benefit that they receive. Whether it is a factory canteen or a directors' dining room, they are not liable to 1p extra on their tax. The anomaly is manifestly unfair and it is becoming increasingly unfair as the years pass as a result of inflation. The inequity puts at a disadvantage firms which are not large enough to maintain a staff canteen and which cannot afford all of the overheads that go with it when it comes to recruiting staff.
Luncheon vouchers were introduced after the war when 15p, or three shillings—or three bob, as I prefer to call it — was sufficient to buy a three-course meal. I can remember after the war having a number of substantial blowouts in the then British Restaurants, and the total bill for a good feed was no more than three shillings. At that time the value of a luncheon voucher equated roughly with the price that was being paid in factory canteens. Today, 15p will scarcely buy a cup of coffee. The value of a luncheon voucher is in no respect equal to the amount of subsidy which goes into maintaining staff canteens.
By any standards, the tax-free element of luncheon vouchers is absurd. It has been absurd for a long time and the anomaly has been recognised for a long time. In 1975, an attempt was made to make the luncheon voucher system more realistic. A number of enlightened Members tried to rectify the anomaly by supporting an amendment that was moved in Committee during the consideration of what was then the Finance (No. 2) Bill. An amendment was moved to increase the tax-free element from 15p to 50p, and the Member who moved it used words which are difficult to improve upon. He said:
We seek the change simply on the ground of equity between the employees who have to have luncheon vouchers because their employers are either too small or do not have the premises to provide canteen facilities and those who have canteen facilities, for whom the fringe benefit has been able to keep pace with the cost of food. We seek to make the tax-free benefit more realistic in terms of current costs.
The Financial Secretary will be aware that 15p now goes not very far at all in many parts of the country, particularly in London, in assisting an employee to have a decent lunch. We seek to bring the amount into line with reality." — [Official Report, Standing Committee H, 1 July 1975; c. 649.]
Those were wise words then and they are wise words now. They were the words used by the right hon. Member for Norfolk, South (Mr. MacGregor), who is now the Chief Secretary to the Treasury. I commend them to the House today. The right hon. Gentleman has a chance that is not presented to many who stay in this place for any time. He can demonstrate that he does not say one thing when he is out of office and another when in power. Two faces are not for him. He has a chance to strike a blow for consistency, honesty and sincerity.
When the issue was drawn to my attention I was tempted initially to table an amendment in the precise terms used by the Minister, as he now is, in 1975. However, I resisted what might be described as a tease. I thought that it would be better to table a new clause in words which


overcame some of the objections which were raised in 1975. I succumbed to the tease in Committee, but some of my colleagues argued that I had not brought the value of luncheon vouchers in line with current practices, so I have added the words
or freshly prepared for immediate consumption".
This relates to food which can be purchased by luncheon vouchers. I have taken into account the many snack and sandwich bars, for example, which have come into existance since 1975, when the Minister tabled his amendment, and instant food and food which is taken off the premises.
Luncheon vouchers are provided by many small employers and they are given mainly to young and lower paid workers. The tax-free element governs to a large extent the value of vouchers issued, or which in many instances can be issued. An employer who issues vouchers worth more than 15p a day has to set up machinery to deduct tax at source from each of his employees who receives more than 15p daily. This is expensive and troublesome and consequently in most instances the amount given is limited to the tax-free limit of 15p a day. I am sure that an increase in the tax-free level would result in an increase in the value of the voucher issued for the majority of recipients. Many young and low-paid workers would receive an increase and small firms would be in a better position to compete with firms large enough to run staff canteens.
About 14,000 British companies provide luncheon vouchers for about 500,000 employees. An increase in the value of vouchers would provide more employment in the catering industry, especially for small and family businesses. About 30,000 caterers are involved already. The new clause would cost money and in Committee I expressed my sympathy with the Chief Secretary for the demands which were made on him for resources from various Departments. If the new clause were to be approved, however, a good deal of benefit would be returned to the Treasury in a reduction in unemployment and extra tax revenue. Fewer low-paid people would be in the poverty trap, where it is sometimes more beneficial to be unemployed than to take a job.
t is possible also that the new clause would help to turn people away from having junk food for lunch. If they were encouraged to have something more substantial, that would be of benefit to their working ability and to their general health. Other countries have recognised the benefit of the concession. I do not normally take examples from the continent, but in France the benefit is equivalent to £1·40, and in Portugal, £1·50.
As the Chief Secretary said some time ago, the benefit increase is long overdue. I hope that the right hon. Gentleman likes the change that I have made to the clause since it appeared in Committee. I think that between us we have come up with a pretty good formula to increase the safeguards over any abuse which may be made, or thought to be made, by those who use vouchers for other purposes. I do not think that the receipt of luncheon vouchers is what is sometimes described vulgarly as a perk. It is a genuine and desirable benefit. I certainly would not support it if I thought that it was just another perk.
If we brought the value of the tax-free element to the present equivalent, having regard to inflation, the original 15p would have to go up to about £3. I do not ask for that. I think that an increase to £1 would go some way to demonstrating that the Government have the interests of

small employers and young workers at heart. At a comparatively small cost to the Treasury, the Government can assist 500,000 workers. There can be few cheaper ways of showing that they mean what they say about the problems.
9 pm
Since I tabled the clause, I have had a number of representations. I think that a number of hon. and right hon. Gentlemen have also had them. The interest shown by various organisations and individuals has reinforced my view that reform is long overdue. I do not want to embarrass the Chief Secretary by congratulating him too heartily on his prescience in pointing the way. He was a sort of parliamentary pathfinder in 1975, blazing the way for the reform that he now has a chance to pick up.
It is most unusual to find oneself in the position of being able to do what one was thinking about 10 or 11 years ago. If the Government accept my new clause, I should be the first to congratulate them. I would not make any cheap party points about saying one thing in opposition and doing another in government. If any of my colleagues felt inclined to go along that path, I should do my best to damp it down. It would be a most praiseworthy event if the Chief Secretary were able to cough up on this occasion.
If the Government oppose the reform, despite my best blandishments, some of my colleagues might be so churlish as to point out that one thing was said in opposition and another in government. However, the Chief Secretary can rely on me to put the best possible gloss on the outcome of the debate. He is a decent chap; I am sure that he will do his best. I am giving him an opportunity to cast an eye over a simple and inexpensive reform that would help a number of people who are probably most deserving of assistance. The measure would help entrepreneurs who are setting up small businesses and younger people going to work, possibly for the first time.

Mr. Penhaligon: Can the right hon. Gentleman say which is the most expensive proposal in real terms—the proposal argued in 1974, or the proposal put so wonderfully to the House by the right hon. Gentleman? Perhaps the answer is that his proposal is the cheapest.

Mr. Cocks: I am obliged to the hon. Gentleman. I was thrown a little at first because he used the superlative when he should have used the comparative. I know that he did that only to test my knowledge of English grammar. I agree entirely with the point that he made. I hope that that will be a further reinforcement to the Chief Secretary to cast a favourable eye over the new clause. However sympathetic he may be, he may feel that further consultations are required and that perhaps the net should be spread more widely. I should not be aggressive if he made such a point. I look forward with great interest to the response from the Treasury Bench.

Mr. MacGregor: As the right hon. Member for Bristol, South (Mr. Cocks) has made clear, the matter is a regular runner in Finance Bill debates. As the right hon. Gentleman pointed out, it has been run in Committee, without success, by some young Back-Benchers who have just become Members. Following representations made to them, Back-Benchers may subsequently have been converted to a different view. I shall say something about that later. As the right hon. Gentleman knows, the matter has not been run only once; it has been run many times.
I am aware that the right hon. Gentleman has been prevented from making contributions to our debates for some years. He has certainly made some charming, witty and well-researched contributions to our debate this year. I can see that he has spent many years storing up his contribution. He will know, from his research, that the matter has come up regularly. Therefore, he will not be surprised at some of the points that I shall make to him in return.
As has frequently been pointed out, tax relief on luncheon vouchers was introduced in 1948. Subsequently, it was developed in a different form by way of extra-statutory concessions. It was introduced in the immediate post-war period when conditions and requirements were quite different from those which exist today. The problems were quite different. For example, the income position of employees has changed substantially since then.
The right hon. Gentleman said that one of the reasons for the introduction of tax relief on luncheon vouchers was that people who had subsidised meals in work canteens were advantaged compared with those who did not have subsidised meals at their place of work. The luncheon voucher system was intended to deal with that. Today the great majority of employees have neither luncheon vouchers nor an employer-subsidised canteen and therefore must meet the full costs of their meals from their pay net of tax. The current daily luncheon voucher with the 15p tax concession is equivalent to a tax-free payment of £40 a year. Increasing the concession on the scale suggested by the right hon. Member for Bristol, South would certainly discriminate substantially further against the vast majority of employees who have the benefit of neither provision.
I, too, have been doing research. I think that the right hon. Member for Bristol, South will remember the response to a parliamentary question in February 1979, under the previous Labour Government, when the then Financial Secretary to the Treasury — the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) —responded with these words:
I do not think that such an increase would be justified. To increase the value of the concession would be unfair to the millions of workers who have the benefit neither of luncheon vouchers nor of subsidised canteens." — [Official Report, 12 February 1979; Vol 962, c. 423.]
That is the point I am making now and about which I am convinced. I shall be interested to know whether the hon. Member for Birmingham, Hodge Hill (Mr. Davis) holds the view that was held by the then Government or whether he has changed his mind.
During the period of the last Labour Government, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), the present Financial Secretary to the Treasury, put the point correctly when he said:
I accept the case that benefits in kind should be taxable. I think that it would be far better to have lower tax rates, higher pay, and a totally sensible tax regime. But that is not the world in which we live."—[Official Report. 17 May 1976; Vol. 911, c. 1070.]
That was an accurate comment on the position under the last Labour Government. I am sure, although I cannot quite recall, that that must have been one of the reasons why I was advocating some relief for as many people as possible from the very high tax regime, the levels of which had been increased in 1975.
There are other reasons why the new clause would introduce even greater unfair discrimination against all those who do not have the benefit of these provisions. I shall refer first to perhaps the least important. The right hon. Member for Bristol, South said that, if we accepted his recommendation, it was likely that fewer people would eat junk foods in the middle of the day. There is evidence — I recall what happened when I had the benefit of luncheon vouchers and saw what happened with many people—that often luncheon vouchers are not used for the purpose intended. They are often used to purchase goods and not simply to purchase lunch-time meals. It is a problem. It is difficult to prevent that. Obviously, increasing the limit would increase the scope for misuse. However, that point is secondary to the issue of unfair discrimination.
The concession would be very costly. That is an important point. The current claim, on figures which we have been able to establish—I think they come mainly from the company that produces the luncheon vouchers — is that about 400,000 employees currently receive luncheon vouchers. If that is accepted as the normal figure and if one uses the normal calculation of the number of days in the year on which luncheon vouchers are available, the annual cost of the present 15p exemption is about £4 million. Increasing the exemption to £1 a day, as suggested by the right hon. Member for Bristol, South, would increase the cost to at least £30 million, but it could well be beyond that.
If the tax exemption were increased to £1, there would obviously be a greater incentive for more employees to request luncheon vouchers and for more employers to grant it. There could easily be a substantial increase in the number of luncheon vouchers and the cost would rise accordingly. In talking about that scale of tax relief and the costs, it becomes important to consider whether this is the right priority at this time. I do not believe that it is.
What we are endeavouring to do with the tax regime and the point made back in 1976 by my right hon. Friend the Financial Secretary are relevant to my next point. We believe that priority must be given to reducing the burden of taxation to the benefit of all taxpayers, rather than to extending special relief to particular groups such as those who have luncheon vouchers. Given that approach and determination, I must challenge whether it should be a priority, or an objective at all, to encourage the spread of perks and benefits in kind. Remuneration in cash rather than kind gives employees greater freedom to decide for themselves how to spend their income. There is also the point that, at the end of the day, benefits in kind are just another form of remuneration.
I do not think that the right hon. Member for Ashton-under-Lyne was in the Chamber when I referred to his response on this subject. I would be interested to know whether he agrees with himself.

Mr. Robert Sheldon: I only came into the Chamber to hear whether the arguments have altered. I regret that the right hon. Gentleman has not discovered anything new. I was able to discover one or two new aspects. I am afraid that the right hon. Gentleman has let me down.

Mr. MacGregor: What has altered is that the cost is rising in terms of priorities. Many of the arguments have not changed. In fact, I accept the arguments. What is different is our determination to reduce the burden of


taxation on employees generally. Therefore, that is why there is a point of principle here. When one accepts that benefits in kind are a form of remuneration and, in principle, should be taxed accordingly, especially in fairness to all taxpayers not in receipt of them—I know that we are not in a perfect world in that respect—I do not believe that it is right substantially to extend the benefit in kind and the tax treatment of it, as the right hon. Member for Bristol, South suggested. It would not be available to all taxpayers and, in any case, I do not believe that it is the right approach at present.
It is for that reason that I have to say to the right hon. Member for Bristol, South that 1 am sorry to disappoint him but we are in a different tax regime and my point of view makes sense.

Mr. Terry Davis: I should like to congratulate my right hon. Friend the Member for Bristol, South (Mr. Cocks) on tabling this new clause and drawing attention to what I would describe as an obvious injustice in that the value of luncheon vouchers has not increased for many years. There was an increase at one time. It used to be 12½p, half a crown, and was then increased to 15p. That was a long time ago and there has not been an increase since. Clearly, the amount has not kept pace with inflation since luncheon vouchers were originally introduced in the 1940s.
Obviously the amount should have been increased and equally obviously the Government should accept my right hon. Friend's new clause in view of what was said by the Chief Secretary to the Treasury in 1975 when he not only debated this proposal but actually moved a new clause to this effect in Committee. He tells us that he has subsequently seen the force of the arguments adduced by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) on that occasion. I understand that my right hon. Friend pointed out that he was not relying on the Treasury brief because he was teased by Conservative Members on the Committee that he was relying on the brief they had used during the previous Conservative Administration. Those arguments, which were so hackneyed and had such little force for the Chief Secretary in 1975, have prevailed in his mind since he came to office a few months ago.
The right hon. Gentleman described this issue as a regular runner. To my knowledge, it has not been discussed for four or five years, certainly not in this Parliament. I am not going to tease the Chief Secretary any more, but he should have been consistent and at least have expressed more sympathy with the arguments of my right hon. Friend the Member for Bristol, South, even if he was not allowed to accept the new clause.
The Chief Secretary put some new arguments. He said that the world, or at least the tax regime in this country, has changed since 1975. He said that, because this country does not have what he described as a high tax regime in 1986, the force of the argument for an increase in luncheon vouchers had declined. In the days when I used to receive luncheon vouchers, they were issued to more junior people in the company. They were not given to the directors, who had rather better eating arrangements. I did not resent that. The fact is that luncheon vouchers brought particular benefit to the more junior and lower-paid people in the office.

Mr. Hanley: The Conservative principle is that those people should be taken out of tax altogether.

Mr. Davis: I am delighted to hear that, but that has not happened under the present Government. The people who have had their taxes reduced are precisely those on the highest rate of tax, not those on the basic rate of tax. The fact is that the marginal rate of tax for the low-paid has increased under this Government. When one takes into account the impact of indirect taxes, they are even worse off. The hon. Member for Richmond and Barnes (M r. Hanley) shakes his head. He must have missed our debate in Committee on clause 15.

Mr. Hanley: I am sure that the hon. Gentleman will remember that I was present during that debate. The tax-free benefit that has been proposed by the right hon. Member for Bristol, South (Mr. Cocks) amounts to about £66 a year for a person paying 29 per cent. tax. The Government have reduced taxation upon exactly the sort of people that the hon. Gentleman has been talking about by more than £66 a year.

Mr. Davis: That is not true. I am sure that the hon. Gentleman believes it, but it is a fairy story. I gave the figures in our earlier debate. If the hon. Gentleman was present, obviously he did not take them in. I should be happy to discuss the matter with him privately afterwards, and to show him the tables that have been produced by the most respectable outside organisations, showing that the marginal rate of tax paid by people in that income bracket has increased under this Conservative Government. The people who have really benefited from the reduction in taxation and who are no longer living in a high tax regime are people like the hon. Gentleman, whose income is much higher than that of people who benefit from luncheon vouchers.
The second reason that was given for the Chief Secretary's change of mind was that there is some abuse of luncheon vouchers. It existed in 1975 as much as it does now in 1986. I see that the Chief Secretary is nodding. So that is a bogus reason.
I had some sympathy with the Chief Secretary when he then said that the provision would cost £30 million, so the Government cannot afford it. The Government have a philosophical approach towards benefits in kind, and I think that the Chief Secretary was alluding to the Government's philosophy during the latter part of his remarks. It has been made clear on Report in Finance Bills in the past two years that the Government have a philosophical objection to benefits in kind, including not only luncheon vouchers but factory and office canteens. I do not think that I am quoting unfairly the previous Financial Secretary, the right hon. Member for Croydon, Central (Mr. Moore). In our debates on workplace nurseries, I am sure that I remember him saying that if the Government had the option today, in the 1980s, they would not exempt the benefit of eating in a factory or office canteen from liability to tax. The fact is that the arrangements for canteens and luncheon vouchers have existed since the 1940s, and the Government are not prepared to experience, particularly in the run-up to the general election, the outcry that would ensue if they put their philosophy into practice. That is their position. If they had their way, they would not be giving those exemptions now.
The Chief Secretary asked me directly what I would do it I were in his shoes. I am tempted to say, "Wait and see,"


although that would not be a satisfactory answer. The Labour Governments of the past have not increased the tax-free value of luncheon vouchers—I am sure that my right hon. Friend the Member for Bristol, South (Mr. Cocks) played some part in ensuring that that did not happen in his previous role as Chief Whip in the Labour Government—and I would not hold out any hope that the next Labour Government would increase the tax-free value of luncheon vouchers, precisely because of priorities. The Chief Secretary estimated that the provision would cost £30 million, which is a substantial sum. The sums of at least £25 million for the personal equity plan and £30 million for luncheon vouchers add up to significant amounts. The next Labour Government would want to use such substantial sums to put our priorities into effect, which, in any case, are different from those of the Conservative Government.
Therefore, although I have a great deal of sympathy for my right hon. Friend the Member for Bristol, South, and would not wish to oppose his arguments as a friend because I recognise the force and justice of his case, I cannot tell him that I would support him if he pressed the new clause to a Division because I do not want to put a future Labour Chief Secretary in the position in which he has put the present Chief Secretary, the right hon. Member for Norfolk, South (Mr. MacGregor).

Mr. Cocks: I am grateful to the Chief Secretary for his contribution. I agree that in 1948 the position was different.
Then a dynamic Government got 6 million people out of the forces and back into civilian life without any massive unemployment. They put our war industries onto a peacetime footing and on a smooth and equitable basis. They took into public ownership the clapped-out public utilities which had been run on a care and maintenance basis throughout the war. At the same time, the Government repaired and restored over 2 million homes which had been destroyed or severely damaged due to the German blitz. All this occurred when our overseas assets had been flogged to buy essential war equipment, food and raw materials and the bulk of our merchant shipping fleet had been sunk. I agree that the situation in 1948 was entirely different but I will not go on to draw a parallel with how the Government are tackling the problems facing the country today.
I thought there was a certain inconsistency in the Chief Secretary's argument that people should be given their money to spend as they liked but then said that one of the reasons why he was not in favour of luncheon vouchers was that they might be abused by a small number of people who might use them for other purposes. I thought that was a weakness in his argument.
I understand the right hon. Gentleman's argument about the possibility of a large uptake if this scheme was introduced. Such an uptake could not be predicted. Given the difficulties under which Treasury Ministers labour in attempting to keep within limits and always having to look for economies, an open-ended commitment of this nature is difficult to undertake. I understand that.
I was encouraged when the Chief Secretary said that this was not the right priority. I hope that this opens the door to show that the Treasury mind is not entirely closed on the matter. It may well be that last Thursday night we

had a curtain-raiser to the possible date of the next general election. The Secretary of State for the Environment came to the House and announced that water privatisation was off the menu for this Parliament.
I worked in the usual channels for many years and I know that, unfortunately, with the best will in the world one often imputes base motives to people in circumstances where others may have given them the benefit of the doubt. I thought that the announcement was a ploy for possibly having a nice fat carrot next year at a general election. Perhaps the Government will offer to increase mortgage relief from £30,000 to £35,000 or £40,000. I declare an interest because I am at present in the process of upgrading my mortgage commitment to £40,000. I trust that the House, and even the Chancellor, who is present, will take that into account.
I thought last Thursday's announcement was a sprat to catch a mackerel. In scavenging about, the government may think that luncheon vouchers are an attractive thing to put in the shop window. However, I do not think that that will be sufficient to return them at the next general election.
Because of the comparatively forthcoming statement by the Chief Secretary and his mention of priorities, and understanding his difficulties about taking on a commitment—the full extent of the expenditure was not foreseen—it would be in the best interests of the House if I were to beg leave to withdraw the clause. At least we have had a debate about it and the points can be considered. No doubt one party or the other will return to the matter at some future date.

Motion and clause, by leave, withdrawn.

New Clause 22

BOARD AND LODGING ALLOWANCES

`In section 189, subsection (1), Taxes Act 1970, after "defrayed", the following words shall be inserted—
Any employee may make a claim for board and lodging in respect of expenditure incurred while away from his normal place of work, providing he is maintaining, or contributing to the maintenance of, a residence in the vicinity of his normal place of work.".'. — [Mr. Wrigglesworth.]

Brought up, and read the First time.

Mr. Wrigglesworth: I beg to move, That the clause be read a Second time.
This clause arises from a case which I have taken up on behalf of a constituent. I have pursued it over a period of years to try to get for him what I believe is proper justice in the legitimate claims that he makes for expenses and which he is taxed upon. My constituent is involved in a long-running dispute with the Inland Revenue. I raise this matter this evening because it has wider implications and interests than merely those of my constituent.
My constituent is a single man and is sent to different parts of the country to work for one or two weeks at a time. His employers have apparently agreed with the Inland Revenue that, where an employee is married, hotel costs can be reimbursed free of tax, but that in the case of a single employee tax and national insurance contributions must be deducted from his expenses, and it also costs the company additional employer's national insurance contributions.
I should have thought that the employee concerned could make a section 189 claim, but the basis of the


Revenue agreement is that a single person does not have to maintain a fixed abode, and so is taxable on living expenses which are reimbursed, whereas a married person does and so is not taxable. The concept that a married man must keep an abode and that a single man must not is nonsense. It underlines Ministers' judgments in my correspondence with them.
The present Revenue treatment of this company's case produces farcical results when a married person and a single person are away together on business on an out-of-town job. They both claim expenses but those expenses are taxed differently. Surely the Revenue is wrong not to admit a section 189 claim.
My new clause seeks to make the treatment of single and married people the same in those circumstances. At present people such as my constituent are losing considerable sums from having to pay tax on necessary expenses incurred when they have an abode at home. I see no reason why such people should be treated differently from their married colleagues when they have exactly the same responsibilities of maintaining a home.
I hope that the Minister will be prepared this evening to give some assurance to me, my constituent and many others in the same position that he will reconsider the provisions of the law and, perhaps, accept this new clause so that there may be equality of treatment between married and single men claiming expenses in this way.

Mr. Norman Lamont: The hon. Member for Stockton, South (Mr. Wrigglesworth), through the case of his constituent, has certainly uncovered a complicated matter and I for one am grateful to him for raising it. I do not think that his new clause is the right way to tackle the problem for reasons which I shall explain, but I shall say how I think I could approach it constructively, even if I cannot guarantee to solve it.
Under the general rules of schedule E, an employee is chargeable to income tax on all of the remuneration from his employment, including any allowances or reimbursed expenses, except to the extent that he is entitled to an offsetting deduction for expenses incurred.
Obviously the schedule E expenses rule must be strict. An employee may have a deduction only for expenses he "necessarily" incurs in travelling in the performance of his duties, or which he otherwise incurs "wholly, exclusively and necessarily" in the performance of those duties. That means that if an employee necessarily incurs additional expenses of travel or accommodation as a result of travelling in the performance of his duties, or of his being required temporarily to perform those duties at some location away from that where he usually works, such expenses will normally already be deductible under the existing statutory rules. Where, as will usually happen, the employee receives an allowance from his employer to cover those expenses, that allowance will not in such circumstances be taxed on the ground that the employee would be due an equal and offsetting expenses deduction.
9.30 pm
For this reason, the new clause would be superfluous. Indeed, though no doubt the hon. Gentleman did not intend this, it could actually leave some employees worse off. For example, as drafted, the new clause would allow relief for board and lodging expenses only if the employee was maintaining or contributing to the maintenance of a

residence in the vicinity of his normal place of work. The hon. Gentleman will see that that could operate to some people's disadvantage.
The schedule E expenses rule is nevertheless a strict one and has been strictly interpreted by the courts. It is well established that relief is not admissible for the expenses that an employee incurs in travelling between his home and the place where he normally works, or for the expense of maintaining a home at or near his normal place of work. The reasoning here — the hon. Gentleman will be familiar with it—is that such expenses are not incurred in the performance of the duties of the employment. Rather they are expenses of a personal nature which simply put the employee in a position to carry out those
Though strict, it is obviously right and sensible that the line should be drawn in that way. Virtually all employees will to a greater or lesser extent incur such personal expenditure in travelling between their home and their place of work, and of course we all incur living expenses wherever we work. In short, the law already makes suitable provision for the deductibility of expenses, including board and lodging.
I gather from the constituency case that he has raised that the hon. Gentleman is especially concerned about the tax treatment of allowances for single employees under a working rule agreement, which are taxed, whereas those paid to married employees are not.
Working rule agreements are drawn up between representatives of employers and trade unions to govern rates of pay and conditions of work in the construction and various allied industries. The Inland Revenue is not a party to the agreements itself, but in view of the high degree of mobility of employees in the industries concerned the Revenue has for many years agreed that payments of certain of the allowances under the agreements—including those for board and lodging—should not be taxed, on the basis that in the generality of cases the employee would be entitled to an offsetting expenses deduction for some or all of the expenses in question. In short, this arrangement has no statutory effect but is simply one of administrative convenience for the benefit of employers, employees and the Revenue alike. It is welcomed by employers and is designed to obviate the need for the many individual expenses claims that would otherwise arise.
One of the allowances is for board and lodging, where the employee is working at a site which necessitates his living away from home. Under the Revenue's practice in respect of such agreements, such lodging allowances paid to a single employee who does not maintain dependants at his permanent home are taxed, whereas those paid to a married employee or to a single person with dependants are not.
The reason for this difference in treatment is that it is clear in the case of a married man or a single man with dependants that, in addition to the cost of his lodgings while away from home, he will continue to incur the expense of maintaining a permanent home for his dependants. The case of a single man without dependants is less clear cut and may be distinguished because he may or may not have continuing responsibilities.
This is an extra-statutory concession, but I quite see that the distinction is somewhat arbitrary. However, if it is to work, the Revenue and employers alike need clear-cut


rules and definitions which can be operated in practice and which we do not have to police with too many local inquiries. That is why the line has been drawn in this way.
This is a complicated matter and I have tried to explain the difference between the statutory position and the extra-statutory position and how it is operating. Nothing, as it operates, is denying any taxpayer of any of his statutory rights. In so far as there is a concession, it is obviously a concession which benefits the married person with dependants or the single person with dependants. They are getting a concession. No one is denied any statutory right as a result of the way in which this operates.
When I looked into the matter, I felt uneasy about the point which the hon. Gentleman has raised. I cannot give a clear assurance that there is an easy answer to it, but we shall look carefully at it to see whether there is a practicable way in which this particular feature in the arrangements operated by the Revenue might be relaxed so as to take account of the single employee who does not have dependants living with him but who is, nevertheless, maintaining a permanent home, which, I think, is the precise point at which the hon. Gentleman is getting.

Mr. Wrigglesworth: I am grateful to the Minister for rehearsing the background to this matter. I have been through it in correspondence with his predecessor and know it well. I have summed up the basic grievance in my speech which the Minister has come to at the end of his remarks.
The working rule agreement is the basis of the anomaly, but it is intolerable that, as is so clearly demonstrated, when a married man and a single man, both with homes in the same town, go to work in another town together, the single man should be taxed on the hotel accommodation that he must have in order to carry out this duties, while his married colleague is not taxed. He is worse off although he is carrying out his duties at work. That is an intolerable situation which does not apply only to my constituent. It has wider implications for others, which is why I have raised it this evening.
I am grateful to the Minister for saying that he will look at it. It is an arbitrary distinction and I hope that he will find some way of overcoming it, not just in the case of my constituent, under his particular working rule agreement, but in all working rule agreements that apply to other employees in other parts of the country.
I can understand, and I think my constituent understands, that it is to the benefit of the Revenue, firms and employees that arrangements of this sort should operate. It is clearly to everybody's benefit that they should, but not if they give rise to anomalies of this sort.
I have fought to try to have this put right for some years and I plead with the Minister to take action on this quickly so that the anomaly is not continued. I know that he cannot find and announce the solution now, but I hope that he will be able to come to the House soon, having expressed his understanding of the predicament in which my constituent finds himself, and announce that a solution to it has been found.
The Minister having given those assurances, I am pleased to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 24

EXTENSION OF SECTION 5A OIL TAXATION ACT 1975 (ALLOWANCE OF EXPLORATION AND APPRAISAL EXPENDITURE) TO EXPENDITURE INCURRED IN DEVELOPING AN OILFIELD

'(1) With respect to expenditure incurred on or after 1st July 1986, section 5A of the Oil Taxation Act 1975 (allowance of exploration and appraisal expenditure) shall be amended in accordance with subsections (2) and (3) below.
(2) For subsection (1)(b) of section 5A of the Oil Taxation Act 1975, there shall be substituted—

"(b) is so incurred either wholly and exclusively for one or more of the purposes specified in subsection (2) below or, being expenditure which would be allowable under section 3 of this Act in relation to a field, is incurred before the first day of the critical half year as defined in section 1(4) of this Act for that field."

(3) At the end of subsection (1)(c) of section 5A of the Oil Taxation Act 1975, there shall be added—
or, if it does so relate, was incurred on or after 1st July 1986.".'.— [Mr. Kennedy.]

Brought up, and read the First time.

Mr. Charles Kennedy: I beg to move, That the clause be read a Second time.
I am grateful that the new clause, which I have tabled along with my hon. Friend the Member for Caithness and Sutherland (Mr. Maclennan), has been selected and that we have the opportunity for a short debate on this important matter. I hope that the House will understand if I put the matter in context by painting the importance of the issue to my constituency, to my part of the country and to the economy as a whole.
The House will be well aware of the growing concern in the oil and oil-related industries as the result of the developments that have taken place as a result of the dramatic and remarkable fall in price on the international market. That fall in price has beneficial consequences for many aspects of the economy. Indeed, no secret has been made of that fact by Ministers, who have welcomed it. However, it has carried with it a downside, as most things do, in respect to the pace and momentum of North sea oil
My concern arises because in the Ross, Cromarty and Skye constituency there are two major fabrication yards, Howard Doris on the Kishorn site, Wester Ross, and Highlands Fabricators, which, I am glad to say, recently won the substantial Eider platform contract, leading to an audible sigh of relief throughout the economically depressed Easter Ross area. In addition, there is McDermotts, Ardersier, in the constituency of my hon. Friend the Member for Inverness, Nairn and Lochaber (Sir R. Johnston), which was unlucky in regard to the Eider award. There are many examples of the oil-related industries creating employment generally on the supply and servicing side. Therefore, the downturn in prices that has given rise to a downturn in development activity is bad news for areas dependent on the large construction contracts and servicing and supply contracts that come from the momentum of North sea development as a whole.
With OPEC in some disarray, we can hardly look to the Treasury to solve such a complicated and volatile international problem. I do not ask the Minister to try to perform miracles in promising or guaranteeing specific levels of oil price in the future and stability in the market; coming even from these Benches, I think that that would be fairly unreasonable, given the geopolitics and


economics of oil at present. However, the Government should give us the opportunity to hear from the Dispatch Box at this stage their views on steps with regard to the tax regime and certain aspects of it as they affect development work in the North sea.
I have had a fair amount of correspondence of late with Ministers on the matter. It is worth bearing in mind that the rewards for Britain's current attractiveness as a location for petroleum investment are high. I refer to an industry study of two years ago on the geological potential of the United Kingdom. It is estimated that beween then and the end of the century about 80 new fields could be developed, 100 production platforms built, 1,400 appraisal and development wells drilled and over 2,700 miles of offshore pipeline installed. That would be expected to call for an expenditure of up to £60 billion at 1984 prices, three quarters of which could reasonably be anticipated to be awarded directly via contracts by British companies. That is a considerable long-term potential. I think that we all agree that we want to see as much of that potential realised as possible.
The argument that is beginning to build up in oil circles and elsewhere is that the time has come to look at the existing tax structure for North sea work and see whether there is anything that the Government can do at this stage, because of the depressing effect of reduced oil prices, to encourage development work.
9.45 pm
A few weeks ago I made proposals both to the Department of Energy and to the Chief Secretary to the Treasury. The Minister with responsibility for industry at the Scottish Office commented on some of the points that I made. He endorsed the view of both the Treasury and the Department of Energy and said that there was little evidence that the tax regime was making economic projects uneconomic. That is not a clear-cut issue. Even this new clause is not the panacea to all ills, but the distinction that is being made by Ministers is missing the point to a certain extent.
It is valid to argue that a project that is economic before tax considerations are taken into account remains economic, even under the present fiscal regime. It is not the tax regime that has led to the problem. The fall in the price of oil has led to the problem. Constraints surround what the Government could do, although one could argue that they could do more. However, that is not the point that I want to make this evening. The Government could encourage the oil companies to continue development work by altering the tax regime. This was acknowledged by the Chancellor of the Exchequer in his Budget speech on 18 March. He said:
Otherwise, I propose only minor technical changes to the taxation of North sea oil; but I am continuing to keep the economics of incremental investment under review, and shall not hesitate to introduce at the earliest opportunity any changes which may prove necessary to ensure that worthwhile projects are not frustrated by the fiscal regime."—[Official Report, 18 March 1986; Vol. 94, c. 174.]
The industry welcomed that statement. Under the strict criteria of the Chancellor's argument a cogent case can be made for saying that as yet there is little evidence of worthwhile projects being frustrated purely by the fiscal regime. However, given the fall in the price of oil, the fiscal regime is one means by which some stimulus could be provided to create the momentum that is now lacking.
I acknowledge that there are difficulties. Different types of fiscal alterations could be introduced, but I do not

intend to rehearse them tonight; some of them are outwith the bounds of the new clause. I am more interested in the principle that is at stake, which is what action could he taken by the Government. One of the difficulties was best summed up in a recent article by Dominic Lawson, who wrote an article in the Lombard column under the appropriate title
Taxing times in the North Sea.
He referred to the general argument surrounding the petroleum revenue tax regime and made the very important point that if the Government introduced certain concessions the oil majors would perhaps not channel the money right back into the North sea. They are baulking at North sea developments because they are not sure that the project will give a satisfactory return irrespective of the tax regime.
Money given back by the Government is more likely to fuel the acquisition of one company's reserves by another. That outcome would not be attractive to the Government and I would share their view about that. Mr. Lawson goes on to detail some of the other difficulties that would arise if the type of concession given was the one that we now read so much about in the financial press. It is a concession promoted by the major companies and it would benefit them.
I appreciate that there is a genuine problem and I do not pretend that this new clause would in itself be able to overcome it. The Scottish Grand Committee recently debated the oil industry and in the Committee the Minister of State, Department of Energy developed the argument about which I have spoken. He said:
Several companies and associations in the oil industry have put forward suggestions for change. I suggest to the Committee, however, that the tests that we apply to those suggestions have to be, first and foremost, not merely what effect a tax change has on the cash flow of a company. A company will naturally argue for changes in tax that will help cash flow".—[Official Report, Scottish Grand Committee, 24 June 1986; c. 9.]
The central point is surely the purpose for which the increased cash flow is used. It should be used in a way that will not simply generate more profits for the company with no guarantee of subsequent reinvestment in the areas in which we seek investment.
One of the ideas being canvassed goes slightly beyond the scope of the new clause, but is relevant to the issue that the new clause seeks to address. It is the abolition of inter-field ring fences on development costs. The ability of the oil companies to set development costs and new projects against PRT on existing fields could reduce the net capital investment on new field development and shorten the payback period. That abolition would arise from the concession which allows exploration costs to be set against PRT.
If that kind of change is considered, I strongly urge that the principle of ring fencing should be retained for the whole of the North sea. I say that for the reasons that. I have outlined: that any returns accruing to the oil companies as a result of such a concession would have to be reinvested directly in the continuing development of the North sea as opposed to being directed to other activities. It is that type of approach to which I hope the Government will give further consideration, and it is with that type of approach and in that spirit that the new clause is moved.
The clause is not perfect, and since I tabled it I have been advised that if I want to make its provisions more comprehensive about the development work that could be encouraged I should add at the point which reads
under section 3 of this Act
the words "and section 3 of the Oil Taxation Act 1983". Therefore, I am the first to concede that the clause is not as good as it could be, and on that ground alone I suspect that the Minister will probably reject it.
The clause is put forward to voice the view that we must be getting near the stage where some kind of Government action is required to forward development work. In putting forward that case, it must be remembered that we are not talking just about profits, jobs, industries and communities such as mine. Those things are important, but we are also talking about the beginning of the disbandment, especially by many of the major companies, of the development teams, the people who are concentrated in Aderdeen and elsewhere. Those people have the ability to work as a team and to carry forward development plans and projects from concept to reality.
With the industry in some disarray and with there perhaps being some over-reaction to the present difficulties, we shall lose some valuable people as they are dispersed. A signal from the Government might do something to retain those important people, so that if the price picks up again development work can be carried out and seemingly non-viable fields can once again become viable. Such a measure might favourably affect the viability of certain projects.
The aim of the new clause is to permit expenditure on developing a field to be offset against PRT payable on another field owned by the same licensee. The clause works by expanding the relief currently available for exploration and appraisal expenditure on searching for oil and so on, as contained in section 5A of the Oil Taxation Act 1975. The relief is limited to expenditure incurred before "the critical half-year". That means that relief is limited to the period before the six months in which production from the field exceeds 1,000 metric tonnes.
Thus, the aim would be to limit the qualifying expenditure to that incurred in developing the field, as opposed to operating it. Rather as I said about the use of any extra returns that may accrue to companies, my anxiety is about development work and about maintaining its momentum.
Relief would be available only for expenditure incurred from 1 July 1986. Thus, if a field commenced production after that date, but expenditure had been incurred in the period bridging 1 July, only the expenditure from 1 July would qualify. Having admitted the difficulties, complexities and political constraints that would face any Government, especially following the difficulties in which OPEC finds itself, I hope that the Minister will be able to accept the spirit in which the new clause has been moved. I hope that he will also accept the genuine local concern about present developments in the oil industry and the effect that is already being experienced on the Scottish economy. I fear that things will get considerably worse if the current slow-down in development persists.
It is also worrying that when the Chancellor referred to this difficulty, he also told us that his Budget strategy was based on the price of oil probably levelling out this year at about $15. That figure is beginning to look rather

optimistic. In recent days, the price has fallen still further. But even in the unlikely event that the price returns to an average of $15 a barrel, it must be recalled that the Scottish Development Agency recently did a computer projection which showed that if that oil price was projected over a 10-year period it would lead to a cut of no less than 40 per cent. in spending by the companies. That means big trouble for some of the firms and major industries that have contributed so much in terms of advanced international technology. Moreover, the oil industry contributes to 25 per cent. of what is left of our manufacturing capacity.
Those are the reasons for this admittedly imperfect new clause. I hope that the Minister will give us the benefit of the Treasury's thoughts at this stage. I also hope that, when the Treasury continually says that it is keeping the matter under review, it is not just wringing its hands while the oil industry collapses round our ears, rather like the price of oil has done, but that it is ready to step in and to take preventive action. I hope that the Treasury is convinced that such action will be of assistance. Indeed, hon. Members on both sides of the House are becoming increasingly sure that it will be.

It being Ten o'clock, further consideration of the Bill stood adjourned.

Orders of the Day — BUSINESS OF TH1E HOUSE

Ordered,
That, at this day's sitting, the Patents, Designs and Marks Bill [Lords] may be proceeded with, though opposed, until any hour.— [Mr. Peter Lloyd.]

Orders of the Day — Finance Bill

Not amended (in the Committee and as amended in the Standing Committee), again considered.

Question again proposed, That the clause be read a Second time.

Mr. Norman Lamont: The hon. Member for Ross, Cromarty and Skye (Mr. Kennedy) has a strong constituency interest in the oil industry and in the offshore supply industry. I appreciate what has prompted him to move the amendment and I am grateful for the restraint with which he did so. I noted the hon. Gentleman's comments about Mr. Dominic Lawson. I am not sure how seriously those comments were meant, but I assure the hon. Gentleman that all Treasury Ministers read Mr. Dominic Lawson very seriously.
The new clause seeks to widen the definition of expenditure qualifying for immediate PRT relief to include any development expenditure other than long-term assets incurred before total production from the field reaches 1,000 tonnes. Its intention, I assume, is to include all development expenditure although as drafted, capital expenditure qualifying for relief under section 3 of the Oil Taxation Act 1983 is not covered. In other words, the aim is considerably to extend the scope for companies to offset North sea costs against the PRT payable in respect of other fields. In that case, it is a new development because it breaches the present field-by-field basis of the charge.
The new clause represents a significant relaxation of the present North sea fiscal regime. The hon. Member argued that some relaxation is required to cushion the impact of the fall in oil prices. It would be wrong simply to focus on the rate of tax. Admittedly, that looks high, but it is only part of the story. Account must also be taken of the


especially generous reliefs built into the system. The net result is a regime that is well-tuned to adapt automatically to oil price movements.
On the Government's calculations, tax take on an accruals basis as a proportion of pre-tax North sea revenues remains almost unchanged in 1986 from the 1985 figure. If we compare tax with the pre-tax trading surplus —that is, sales revenue minus operating costs—we see that the proportion has fallen quite significantly. The North sea continues to provide substantial profits for the oil industry while the tax regime ensures that the Government bear their share of the consequences of the price fall. It should be remembered that these conclusions exclude the industry's downstream operations and these are generally more profitable than has been the case for some time.
The Government have long made it clear that one of the overall objectives of the North sea tax regime is to leave companies with adequate incentives for future exploration and development. It was with this objective in mind that we introduced in the 1983 Budget a package of generous reliefs aimed at exploration and new fields. In our view, there is no evidence that the tax system as thus reformed, is causing problems. Virtually all developments which are economic in pre-tax terms remain economic after tax. The hon. Member admitted that in his remarks and said that as yet there are no signs that developments were being held up. I am sure that the hon. Gentleman will not argue that something which was uneconomic before tax should be made economic after tax.
I assure the hon. Member that the Government are in no way complacent about the problems which could be created by the fall in oil prices. It is our practice to keep the overall impact of the regime under review and in recent months we have kept a particularly close watch on the position. We believe that it is especially important to maintain contact with the industry. In addition to our regular contacts, we have specifically invited the industry to submit evidence about the operation of the present regime in the new situation.
Some evidence has already come in and this is being analysed. In addition, we have made our own analysis, which suggests that where lower prices seem to be causing delays, tax cannot be blamed. Projects that are uneconomic after tax are almost always uneconomic before tax. In any event, as a result of the changes that we made in 1983, many of the next generation of projects are paying virtually no PRT and no royalties. They will be subject to the same regime as companies in the rest of the United Kingdom's industry and will pay only corporation tax.
Even if it appeared that some relaxation of the present regime were needed, it is not clear that the measures set out in the new clause would provide the answer. By providing an incentive to projects which would otherwise be uneconomic, distortions would inevitably be introduced into the system. Investment priorities would be determined in part by fiscal considerations. In general, there is no guarantee that the tax thus saved by the companies would be channelled into increased activity on the United Kingdom's continental shelf. Such activity might be channelled outside the United Kingdom altogether.
For these reasons, we do not believe that the cost of the proposed change could be justified. I have explained to the hon. Gentleman the extent to which we watch developments. For the reasons that I have given, some of which he has heard before, I cannot accept the new clause.

Mr. Kennedy: I shall not say that I am grateful, but I thank the Minister for his reply. I accept that it cannot be argued that it is tax, in splendid isolation, which is causing all the problems in the North sea. It is OPEC and not tax which is doing that. However, the one lever which is at the Government's disposal and which can influence development activity is the fiscal regime. I enter the plea that the Government keep that under close review. I was glad to hear what the Minister said about that in his reply. The right hon. Gentleman has told us that a close review is taking place with a view to the making of any changes which may become worth while, and which may yet persuade Ministers of the need for action. As the Chancellor of the Exchequer said in March, Ministers will not hesitate to make changes.
We do not want to see any accruals which would come to oil companies being directed elsewhere. I hope that other changes that the Treasury may consider in due course can be geared in a way that ensures that any returns coming to the companies can be reinvested directly in development work, which will lead in turn to contracts for companies which employ many people—sadly, some do not—in the north of Scotland, of which they can take advantage. I thank the Minister for his indication of Treasury thinking at this stage from the Lawson in the Financial Times and the Lawson at No. 11. I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
Further consideration adjourned. — [Mr. Peter Lloyd.]
Bill (not amended in the Committee, and as amended in the Standing Committee), to be further considered this day.

Patents, Designs and Marks Bill [Lords]

As amended (in the Standing Committee), considered.

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. John Butcher): I beg to move, That the Bill be now read the Third time.
The Bill is a non-controversial amending measure. It is of restricted scope and is directed to two particular purposes. Since this is the first time that the Bill has come before the House, let me briefly state what these purposes are.
Clause 1 and schedule I amend the Trade Marks Act 1938, the Registered Designs Act 1949 and the Patents Act 1977 so that the Patent Office will no longer be obliged to keep its statutory registers in documentary form. The Patent Office will therefore be able to computerise such parts of the registers as it finds expedient as soon as this becomes possible. The public will be able to inspect the material on the computerised registers—for example, on VDUs at the Patent Office—and to obtain hard copies.
The other main subject of the Bill is service marks. Provision is made for the registration of service marks by the Trade Marks (Amendment) Act 1984, which was originally introduced by my hon. Friend the Member for Loughborough (Mr. Dorrell). That Act is not yet in force, but the Government intend to implement it from 1 October this year. Before that can be done, however, a number of consequential amendments need to be made to existing legislation, and that is the purpose of clause 2 and schedule 2.
Several amendments to the Bill were effected in Committee, but they were all technical. Some were consequential on amendments already effected in another place, and others were directed to correcting an omission in the 1984 Act. They were all, as I have said, technical amendments and the Bill before the House today is, in all major respects, no different from the Bill as brought from another place.

Mr. Bryan Gould: This small but useful measure is brought forward at a time when the whole world of intellectual property is in a state of rapid transformation. First, there was the White Paper "Intellectual Property and Innovation" published in April this year, which I assume presages a major piece of legislation to be introduced in the new Session. Then there is the change in the status of the Patent Office, a change which I should make clear that Labour Members regard with some scepticism, and which has aroused the anxieties of the work force at the Patent Office. That is one aspect of the new legislation that we shall consider with considerable care and critical judgment.
Less controversially, there is the impending decision to be taken as to the siting of the European Community's trade marks office. I make clear the support of Labour Members for the campaign waged by the Government in support of siting the office in Britain. We support that campaign, both on its merits and because we believe that it is high time that we had placed with us in this country the headquarters of a major European Community institution. It is a sort of quid for a substantial quo.
In case you are on the point of saying, Mr. Deputy Speaker, that none of those matters is strictly relevant to the Bill, I concede immediately that the Bill, as the Minister has said, concerns itself with two small but, in their own way, important points. The first enables the Patent Office to bring itself into the computer age. I think that the Bill removes obstacles rather than commands the Patent Office to do that. The Patent Office is well advanced in its plans for the computerisation of its records. Secondly, the Bill, in a sense, makes consequential amendments which will pave the way for the introduction of service marks in October this year.
We support both those worthwhile measures. Accordingly, during the brief earlier stages of the Bill, we have contended ourselves with asking the odd probing question and watching the progress of the Bill with a benevolent eye. Now that it has reached its final stage, we are happy to give it a Third Reading.

Mr. Archy Kirkwood: I am grateful to the Under-Secretary of State for allowing this brief debate to take place. I am sure that he agrees that, because the Bill originated in the other place and was considered in Standing Committee, it is appropriate for us to spend some time rehearsing it on the Floor of the House.
I congratulate the Under-Secretary of State on the smooth passage of the Bill which he has piloted through the House. Obviously, there were more complex debates in the other place. The alliance is grateful that the Government listened carefully to the contribution of my noble Friend Lord Lloyd of Kilgerran, some of whose amendments were considered in depth and some of which were accepted. His knowledge is recognised by both sides of the House.
The Bill's objectives, restricted though they are, are to be applauded. Some work remains to be done if the legislation is to meet the needs of modern business. I single out the inclusion of service marks as an especially welcome provision. We do, however, have some doubts about the costs of acquiring these new service marks. If small business men use professional advisers, it can cost as much as £1,500 to £2,000 to obtain a United Kingdom patent. If that is extended to a worldwide patent, it could cost as much as £50,000. The Government would do well to bear in mind those costs and to ascertain whether they can be reduced.
Lord Lloyd of Kilgerran described this aspect of the law as being full of "fulginous obscurity" — a well-known Welsh expression. We believe that small inventors should be able to register service marks more cheaply than at present.
As Lord Lucas and the hon. Member for Dagenham (Mr. Gould) said, we now have the White Paper on intellectual property. I think I would be ruled out of order if I followed its arguments, but I should like some of its ideas to be included in the legislation. I accept that, if that had been done, the measure might have been made controversial and its progress might have been stymied.
We are still slightly surprised that the Government did not respond more positively to the proposal to extend privilege to patent agents who do trade mark work. Those agents do work which, in other cases, would be done by solicitors or even counsel. They play an important role in the creation of wealth and work extremely closely with


industry. It is slightly perverse to continue this lack of privilege, to which reference was made in the other place. Recently, in "Reports of Patent Cases 1983", Mr. Justice Nurse is reported as having said:
It seems odd and perverse that, if a trade mark agent was entitled to advise a client in relation to legal matters and to conduct certain legal proceedings on his behalf, the same privilege should not apply as would certainly apply in a case where the advice was being given and the proceedings were being conducted by a solicitor.
We should have been happier if such a provision were included in the Bill. We hope that there will be opportunities to include such a measure in the not-too-distant future.
I return to where I began, by congratulating the Under-Secretary of State on piloting the Bill so smoothly towards the statute book.

Sir John Page: I commend these new measures, which will modernise the registers of trade marks and bring Britain into line with the most modern practices in the rest of the world. In this new modernized

system there is a perfect opportunity for the European trade mark office to be brought to England, to Greater London. It would be a great advantage for the country to have the European trade mark office here and it would be right and proper that it should be so. I must say, in an entirely objective manner, that the place for it to be is Harrow. We have an old intellectual background, with a modern dynamic community. Nowhere in Europe could fulfil all the criteria for the office more successfully than Harrow with its nearness to London airport and London, magnificent communications and magnificent schools.
I am grateful to have this opportunity, on behalf of myself and my hon. Friend the Member for Harrow, East (Mr. Dykes), who is in his place and who, with his European knowledge, blazed the trail for the Government to follow to Harrow. We hope that soon the whole weight of the Government's prestige will be behind having the European trade mark office in England and I think that it should be in Harrow.
Question put and agreed to.
Bill accordingly read the Third time, and passed, with amendments.

European Community (Agricultural Reforms)

The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mrs. Peggy Fenner): I beg to move,
That this House takes note of European Community Documents Nos. 6466/86, draft Regulation amending Regulations 797/85, 270/79, 1360/78 and 355/77 on agricultural structures in order to adjust agriculture to the new market situation and maintain rural areas and draft Decision amending Decision 83/641 on joint research programmes and programmes for co-ordinating agricultural research, and 7126/86, draft Regulation amending Regulations 797/85, 355/77 and 1360/78 on agricultural structures to take account of the accession of Spain; and supports the Government's view that these measures should have as a primary aim the closer alignment of agricultural production to the requirements of the market and that the measures must be both cost-effective and containable within existing expenditure ceilings.
With the leave of the House, we shall tonight consider principally the package of socio-structural measures contained in European Community document 6466/86, but it will be convenient to take with it European Community document 7126/86, which extends to Spain the provisions of Council regulation 797/85.
The proposals in document 6466/86 are designed to complement the agricultural price measures agreed by the Council of Ministers at the end of April. They seek to assist farmers to adjust to price restraint but they also seek to achieve a measure of progress towards diverting agricultural land to alternative uses.
We welcome the attempt by the Commission to complement price measures with structural measures to achieve a better orientation of agricultural production within the Community in order to reduce surpluses. As the House is well aware, we have fought long and hard to try to get agricultural production in the Community into a better balance and reduce the burden of supporting surplus production.
Against that background we shall be examining very closely the consequences of the proposals for the Community budget. The Commission had estimated that the package would cost about 900 million ecu over the period to 1991. The expenditure up to 1989 would fall within the current five-year financial framework for the European agricultural guidance and guarantee fund guidance section as a whole. The Commission has stated that the present five-year framework figure would be sufficient to accommodate this expenditure.
We also welcome the Commission's recognition that environmental concerns must be given due priority in any consideration of the future direction of the common agricultural policy. That is reflected in certain of the measures proposed in the socio-structures package, notably the proposals relating to environmentally sensitive areas.
I would like now to deal in a little more detail with the substance of the package. First, under the pre-pension scheme, farmers aged 55 or over who took their holdings out of production or handed them over to young relatives would be eligible for an annual payment attracting an EAGGF contribution of 25 per cent., 50 per cent. in

certain less favoured areas, to a maximum of 4,000 ecu for married farmers and 2,500 ecu for single farmers. The precise level of pre-pension payable, for a minimum of five years and a maximum of 10 years, would be left to member states to determine in the context of their own socioeconomic conditions. Where land was fallowed or put to non-agricultural use such as forestry, the pre-pension would be supplemented by an annual hectarage payment, payable, in the case of forestry, over the period of establishment. There would also be provision for agricultural workers aged 55 or over, displaced as a result of the scheme, to receive a pre-pension.
The likely effectiveness of a general age-related outgoers scheme, such as the proposed pre-pension arrangements, in reducing surplus production will need to be carefully considered, but we are worried that its effectiveness in that respect will be limited not least because it provides for succession by a younger relative. So we shall be looking for further justification for adopting the approach that the Commission has suggested.
Beneficiaries of the pre-pension scheme would also be eligible for capital grants towards the cost of adapting their holdings to non-farming functions, providing they were environmentally acceptable.
We have some reservations about that radical step. The proposal could cover such things as racecourses, golf courses and so on. There is no requirement that the owner demonstrate that the investment is sound or what benefits will accrue. That provision, therefore, needs much more examination.
As regards pensions for farm workers, we already have a well-established social security system in the United Kingdom, which includes provisions for redundancy payments and for unemployment benefit. I do not believe that an additional measure such as this is required or that it would be helpful.
It is proposed that member states may pay an annual premium to young farmers who reduce production either by farming their holding more extensively or by producing for quality rather than quantity. We shall clearly want to consider the proposal in much more detail than it has been possible to do so far. But we doubt that the proposed arrangements would provide sufficient inducement to restrain production and whether they would therefore be cost-effective. Their administration would also be extremely complex and at first sight there would appear to be major problems of enforcement.
I now refer to the proposals on environmentally sensitive areas. When regulation 797/85 was agreed in March of last year, we successfully negotiated provision for designation of environmentally sensitive areas. Then the Commission also committed itself to making further proposals to provide for EC funding of the measures, and it has now done that. However, to safeguard EC funding, more specific conditions are proposed, including a maximum payment against which reimbursement would be paid, and a requirement that payments be made annually on a hectarage basis and that each ESA agreement must run for at least five years. I can appreciate the Commission's concerns, but the proposals are disappointing. They introduce an unnecessary degree of inflexibility, which we shall seek to have removed, although obviously at this stage I cannot predict our chances of success.
The package contains a number of proposals relating to the payment of compensatory allowances in the less favoured areas. They include amendments to the framework under which hill livestock compensatory allowances are payable.
First, it is proposed to vary the present range within which HLCAs have to be paid—that is, from 20·3 to 101 ecu per livestock unit, up to a maximum of 101 ecu, or around £64, per hectare. The Commission proposed a minimum allowance of 30 ecu per livestock unit and a new maximum of 120 ecu per hectare of livestock unit in areas where the severity of the permanent natural handicap justified it. Secondly, it is proposed to increase HLCA allowances by 50 per cent. where producers undertake to improve quality or to change production to meet market needs, or significantly reduce the intensity of production for five years. Thirdly, it is proposed that the maximum allowance attracting EAGGF contributions should be set at 3,000 ecu, or around £1,900, per labour unit.
Fourthly, it is proposed that, where land goes out of agriculture under the pre-pension arrangements, HLCAs would continue to be paid for the duration of those arrangements. Fifthly, it is proposed to amend the provision relating to the afforestation of HLCA land by extending the period during which producers who afforest all or part of their HLCA land may have such land taken into account in their HLCA calculations from 15 years to 20 years.
If adopted, these proposals could have a significant effect on the existing arrangements for paying HLCAs in this country; and, in general, we can give them a cautious welcome. However, there are aspects that are not entirely clear, and in negotiations in Brussels we shall seek to secure improvements. But the proposals are framed so that member states will have a good deal of discretion on the actual implementation. Decisions on the precise nature of any changes in the HLCA arrangements as a result of the new EC proposals would be taken in the context of the review of economic conditions in the hills and uplands which we conduct each autumn. I am not, therefore, in a position at the moment to spell out the full opportunities that might be available to less favoured area producers — or to give a realistic indication of the cost implications.
It is also proposed to extend the system of compensatory allowances to other farmers in the less favoured areas, though a range of commodities would be specifically excluded from coverage. The objective of this proposal is not entirely clear. It seems to us unlikely to control surpluses and is therefore unattractive, even as an optional measure. Moreover, given that compensatory allowances are restricted to the less favoured areas, it is questionable how much scope there is for encouraging non-livestock production here in the United Kingdom.
I now turn to the measures proposed on forestry and farm woodlands. These are of course areas which will need particularly careful attention as we consider ideas for alternative uses for land now producing agricultural surpluses. The Commission has proposed certain changes to the existing provisions on farm forestry in regulation 797/85, which we have not so far implemented in the United Kingdom because we have considered our national grant schemes to be more favourable. It has also included in the pre-pension proposals provisions which could lead to the afforestation of land taken out of agriculture by those qualifying for the pre-pension. Both these sets of

proposals will need careful examination. They will also require to be considered against the background of the proposals which will flow from the EC Commissions consultations on forestry, which we expect to see later this year.
The proposals on training would specifically include three areas of training within those which are eligible for EAGGF reimbursement — training in production of quality lines, in the application of production methods compatible with environmental protection and in forestry skills for farmers. The proposals are a small though welcome addition to a wider regulation covering vocational training. They would be expected only to have a minor effect in the United Kingdom if the regulation on training is implemented.
The Commission has also proposed two measures in the marketing area. They modify regulation 1360/78 on launching aid to producer groups and regulation 355/77 on grant to projects involving investment in marketing and processing. The first proposal, the extension of the life of regulation 1360/76, would apply only to Belgium and the Mediterranean regions. It therefore brings no benefit to the United Kingdom, where we have our own system of formation grants for co-operatives under the agricultural and horticultural co-operation scheme. The Government will therefore be particularly concerned about the financial implication of the proposal. There is little doubt that agricultural structures in the Mediterranean member states need improving but we would need to be satisfied about how useful the proposal is likely to be given that there has been no expenditure under it in recent years.
The second proposal on marketing would amend regulation 355/77 to enable encouragement to be given to investment in the marketing and processing of "alternative crops". The Commission has organically grown products particularly in mind. The maximum grant would be increased by five percentage points. Individual projects riot falling within an investment programme could also be aided at the basic rate. We accept that the possibility that individual projects may be aided may be useful, but may be unnecessary where member states already have investment programmes for the sectors concerned. We will be investigating the proposed higher rates of grant because there are restricted funds available for this regulation. We will need to be satisfied that they are really necessary, even though the Commission expects to contain expenditure within the existing provision.
Provisions for modifying the Community's agricultural research and development programme are included in the package. These are intended to redirect the programme to take account of recent developments affecting agriculture.
Our objectives will be to ensure that the changes proposed to the programme are justified in their own right and do not overlap with other Community initiatives in this area. We will also seek to ensure that such work is most appropriately dealt with on a Community rather than a national basis and represents value for money. We will also bear in mind that concerted action between scientists in the Community, in the form of seminars and information exchanges, can be a quicker and cheaper way of advancing scientific thinking than shared cost research. In a process of adjustment we clearly need to ensure that we have wide and rapid access to results which will be of assistance to agriculture.
In conclusion, our overall attitude towards the sociostructures package is to welcome it as an expression of the


Commission's intention to assist the reorientation of agricultural production within the Community in the face of price restraint. But we are not yet convinced that it is the right way to proceed. There are elements contained in it which we support, but as I have mentioned, there are also elements which will require a great deal of further consideration. We shall also be paying particular attention to the financial implications of the package in terms of cost effectiveness. I shall listen with great attention to the view of hon. Members on the package as a whole and on its constituent parts. I can assure the House that these will be fully taken into account during the course of the discussions on the package within the Community.
Document 7126/86 amends regulation 797/85 on agricultural structures to take account of Spain's accession to the Community. It was discussed by the Council of Agriculture Ministers at the end of May and was agreed in principle, subject to the approval of the European Parliament.
The proposal stems from a statement issued by the Community on 18 April 1985 during the Spanish accession negotiations. The statement acknowledged the structural shortcomings in certain areas of Spain, and confirmed the Community's readiness to make provision for certain favourable conditions under the existing structures legislation. Although the proposal goes further than the statement, all the proposed measures are well precedented elsewhere. The measures provide for some easing of the eligibility conditions for compensatory allowances and capital grants. They also provide for a temporary increase in the maximum rate of capital grant which may be paid and for an increase in EAGGF reimbursement for aids to investments on holdings, compensatory allowances and for aids to joint investment schemes in the least favoured of the less favoured areas.
The Commission has also proposed changes to regulations 355/77 and 1360/78 to take account of Spanish accession. Under regulation 355/77, investment projects in the more disadvantaged regions of the Community receive 50 per cent. or 35 per cent. FEOGA grant rather than the usual 25 per cent. The proposal is to include Spain in the countries eligible for the higher rates of grant and to define the regions to which the rates apply. As regards regulation 1360/78, the proposal is merely to include Spain in the list of member states to which it applies. The Commission has said that the expenditure will be met from within existing financial provisions. The proposals were both agreed by the Council of Agriculture Ministers in May.

Mr. John Home Robertson: I was about to thank the Parliamentary Secretary for her lucid explanation of the documents, but I am not sure whether such thanks would be very convincing. I wish that the hon. Lady could have seen the expression on the faces of her officials in the Box when she undertook to give detailed consideration to all the points raised in the debate.
The term "socio-structural policy" could only have come from Brussels. However, it appears to be a first timid step in the direction of a comprehensive policy for the benefit of rural areas. The Labour party has been calling for such an approach for some time, and welcomes the fact that it may be on the agenda at last.
I must express a fundamental doubt whether the basic objectives of a rural policy can possibly be dealt with within any comprehensive European framework. The patterns of rural communities, farms and the natural environment of the countryside are subject to so many essentially local variations that it seems to us that it would be more sensible to deal with such local affairs at a national level. My hon. Friend the Member for Pontypridd (Mr. John) has repeatedly called for the repatriation of national aspects of the common agricultural policy, and any proposals for structural reform seem to be obvious candidates for national decisions and initiatives within a framework of European priorities.
What the CAP lacks in logic it makes up for in momentum. We have known for years that the system of unrestricted market support through intervention was distorting agriculture, penalising the consumer and fleecing the taxpayer, but the juggernaut is still rolling on, and this year will probably bring even more intervention stores for junk cereal surpluses that no one would want even if they could afford to buy them. The system should go bust, but it will probably not be allowed to. What we need now are policies to restrict output, encourage better types of farming and protect rural communities. My party has made a range of suggestions including disincentives for the production of surplus commodities and incentives for the production of things that we need more of, especially timber.
Such a major shift of direction will require carrot as well as stick. We have had some stick in the form of milk quotas, the co-responsibility levy and higher intervention standards. I take it that the documents before us are supposed to offer a somewhat diminutive carrot to encourage farmers to produce less of the surplus commodities and to do so in a more sensitive manner.
One cannot turn a barley baron into a fully-fledged Friend of the Earth overnight, and the Minister knows that many people in the industry are facing a culture shock. I speak not just for myself but for a number of farmers in my constituency. However, in the past, agriculture has responded spectacularly to incentives and guidance from Governments and from the Community. Just as the industry has responded to production incentives, I have no doubt that it can work within a different set of priorities in future.
The trouble is that the industry has been adrift in a sea of indecision for a number of years. The word "Jopling" has passed into the farming vocabulary as a term for prevarication, confusion and muddle. The prospect of the Minister taking over the Presidency of the Council of Agriculture Ministers at this critical stage is causing some alarm and despondency. But never mind, we have here some new ideas so it is fair enough that we should have a look at them.
The first heading that we are discussing is this so-called pre-pension scheme, which seems to be another way of saying early retirement. I welcome any initiative which could start to establish a career structure in agriculture. It would let older farmers retire and young entrants into the industry. But I question whether a pension of £2,547 a year, less than £50 a week, would be enough of an incentive to persuade many 55-year-old British farmers to retire. Indeed, it is not entirely clear to me why we should want 55-year-old farmers to retire anyway.

Mr. Andy Stewart: Is not the £2,500 that is being offered as a pension about the net farm income that most farmers of 55 are receiving at the moment anyway?

Mr. Home Robertson: I rather doubt that. The average British farmer could expect a considerably higher return than that, although there have obviously been particular problems in particular sectors, of which the hon. Gentleman is as well aware as I am.
The other question which should be raised is why a beneficiary will be allowed to relinquish his farm only to a close relative. Is there not a strong case for encouraging farmers to relinquish land to some appropriate local agency, such as a county council smallholding scheme, which could let the land to a suitably qualified young person who wants to start a career in farming? We have proposed a land bank for that sort of purpose which would fit well with such a publicly funded early retirement scheme.
The other alternative in the pre-pension proposal seems downright bizarre to many of us. Article 1(c) provides for the abandonment of farms which includes
simple abandonment of the land without allocation for any other utilization",
although the farmer might be required to "maintain" the land, for which he would be paid £95 per hectare per year.
I would reject that idea out of hand. I doubt whether it would work. For a start, £95 per hectare would not cover the basic cost of maintaining a farm and its steading. Obviously jobs would be destroyed and the resulting rural dereliction would be fully as ugly as urban dereliction can be.
I can easily anticipate the sort of complaints about weed seeds blowing around from officially abandoned farms, and that would be the least of the problems. If the Minister will not take that from me, perhaps I may refer her to the speech made by the Minister of State, Department of the Environment, to the Oxford farming conference in January this year, if that would not be too painful. We for our part do not want to see any such abandonment of farms.
I want to raise one or two detailed points about the pre-pension proposal. The principal one is whether a landlord's consent will be required for a tenant to enter the scheme. That point should be cleared up. While I am on the general subject, may I ask how the great set-aside debate is progressing in her Department? This sounds like some kind of variation on the theme of quotas, but if it could encourage farmers to bring fallowing back into their cropping system, it could be useful from all points of view. There is a world of difference between "abandonment", as referred to in the documents, and incentives for managed fallowing, which is good husbandry and good for the environment, quite apart from its effect of reducing production.
The second point covered in the documents is the question of helping young farmers to adopt less intensive husbandry techniques. The specific question that I want to ask is why is it necessary to encourage only young farmers to adopt such methods? Surely if that is a worthwhile objective it is a worthwhile objective right across the board.
The next question that must be put is: how can it work? All of us are now supposed to be in favour of the idea of less intensive farming—it is rather like being against sin

—but how precisely can the Minister define "less intensive practices" for the purposes of operating a package of incentives? I warn her that there is an underworld of agricultural consultants out there waiting to take advantage of any loopholes in any grant scheme.
The third section relates to the less-favoured areas. I am intrigued by the possibility of compensatory allowances being paid for crops and produce other than cattle and sheep. I doubt whether there is is scope for such diversification in the British upland areas, but I should be interested to know whether and how the Government propose to implement the suggestion in Britain, or whether it is entirely for the benefit of Herr Kiechle in Gennany. The Royal Society for the Protection of Birds has raised the question of the damaging effect of overstocking, which is positively encouraged by HLCAs at present. It is a fair point. Might it be better to operate the scheme on the basis of area rather than headage? The Minister said that that was possible. Will she consider the point further? I stress that the Opposition strongly support the principle of more effective assistance in less-favoured areas.
The fourth point relates to environmental grants. The Opposition welcome the principle of incentives for farming practices which enhance or protect the rural environment. The Minister acknowledged that the Government have already made a token gesture in that direction with the six environmentally sensitive areas, which are yet to be selected. Indeed, we are still waiting for the legislation to return from the House of Lords. We welcomed the initiative, but it must be greatly expanded if it is to have a significant effect. The Government have earmarked £6 million for the pilot scheme of six sites, and the proposals that we are debating tonight could provide a further 25 per cent., or £1·5 million, from European funds. Will the Minister treat that extra money as extra cash for this purpose, and take advantage of it by designating another two environmentally sensitive areas, or will the money simply follow so much European money into the maw of the Treasury? I hope that we can have a specific answer from the Minister this evening.
The Minister also mentioned afforestation. The incentives that are suggested appear to be consistent with the proposals made by my hon. Friend the Member for Pontypridd a year ago, so we support them. But I must press the Government on this issue, because we are still waiting for them to implement article 20 of the previous structures directive, which would have provided much more generous and appropriate incentives for small-scale tree-planting on farms than is available through the Forestry Commission's planting grant scheme. How long must we wait before that is implemented, let alone any fresh proposals under this directive?
The documents also deal with research and training. The draft Council regulation states:
Existing agricultural training schemes should be stepped up so that farmers can receive the services they require if they are to reorient their production, apply production methods compatible with protection of the countryside and afforest agricultural areas.
Amen to that.
Since the Minister of Agriculture, Fisheries and Food will be the President of the Council that considers that draft, he will have some explaining to do to his colleagues about what he has done to our agricultural advisory, research and development services in recent years and months. Only last week, the Ministry announced that it


would slash another £4·1 million off the Agriculture and Food Research Council's research and development budget, and a further £2·8 million off the Agricultural Development and Advisory Service's research and development budget. We oppose that attack on ADAS, the AFRC and the Scottish agricultural colleges. We recognise the vital role of research, advice and training in such difficult times for farming, so on this occasion we must support the Commission, not the British Minister.
May I conclude on the vexed question of funding. It was originally intended that the guidance section of the common agricultral policy, which deals with structures, would account for 25 per cent. of European agricultural spending. It still accounts for less than 4 per cent. If we want the radical restructuring which the industry requires, and if we want to protect rural communities from the worst effects of that restructuring, we shall need realistic funding from the European Community and from the national Governments. Anyone who reads the publication Agra Europe will have been disturbed to see in the April edition this year the following statement:
Although there was broad agreement on the content of the proposals in the Commission, discussion centred on the difficulties of financing the measure. It seems unlikely that they will be implemented this year in view of the Community's budgetary difficulties, and there is even doubt as to whether there will be enough cash available to introduce them in 1987.
All this talk about a socio-structural package—I would prefer to call it a rural policy—will be so much hot air if it is not backed up by the resources that are required to make it work.
What are the prospects of getting the national back-up funding that will be necessary to make it possible to implement these proposals in Britain? Since the British Minister of Agriculture, Fisheries and Food is now going to be the President of the Council of Agricultural Ministers, will he have either the clout or the ability to persuade his colleagues to begin to shift resources away from the bottomless pit of intervention buying, and to divert appropriate funding into a more constructive, comprehensive rural policy? That is the question that has to be answered.

Mr. David Harris: Despite the valiant attempts of my hon. Friend the Minister to make some sense of this rather woolly document, I could not help wondering in the course of her speech what an upland farmer, say, from Bodmin moor would have thought about the start of the debate if by chance he had strayed into the Strangers' Gallery. These matters are complicated and woolly, and we all wrestle with them and wonder what they really mean.
I echo the question posed to my hon. Friend by the hon. Member for East Lothian (Mr. Home Robertson). What, for example, are the prospects of bringing in the pre-pension scheme? There is a great deal of interest among farmers on this matter. What is the attitude of Her Majesty's Government to the scheme? Are they really enthusiastic about it? Will they push it in the term of the United Kingdom presidency?
I want to concentrate on one aspect of the documents, the section dealing with compensatory allowances for less favoured areas. My hon. Friend was rather baffled when

she touched on this part of the documents about the scope for extending the allowances to other types of production. So indeed was the hon. Member for East Lothian. I wonder, therefore, whether I could direct my hon. Friend's attention to a unique less favoured area in the country, the Isles of Scilly, which form the only less favoured area that is not a hill area. She will be aware that the designation of the Isles of Scilly came about some four years ago, and, as the then Member of the European Parliament for Cornwall and Plymouth, I had a small hand in winning that designation. It has meant very little to the farmers and, particularly, the growers on the Isles of Scilly simply because the animal population of the Isles of Scilly is very low. There are no upland farms. Our whole approach in this country to the less favoured areas is based on compensatory allowances for hill farmers.
My hon. Friend will know that the Isles of Scilly National Farmers Union has been pressing strongly in the intervening years to persuade the Government to institute a scheme in which designation of the islands as a less favoured area really means something to horticulture, in particular, on the islands. So far, I am afraid, the union and I have failed in our objective to persuade the Government to come forward with some such scheme. We have received a lot of sympathy from the Ministry. Indeed, the Minister's noble Friend Lord Belstead met me last year on this question. The upshot of our talks was that the Government were sympathetic, but unfortunately a suitable vehicle has not yet arrived by which the change could be made. I am wondering whether the suitable vehicle has arrived tonight in this House.
May I ask my hon. Friend the Parliamentary Secretary to examine, in particular, paragraph 2 of the document, on page 15, which refers to the possibility of an extension, and consider whether that would be a suitable vehicle for the extension of compensatory allowances to other forms of production, particularly horticulture, on the Isles of Scilly. If my hon. Friend were to do that, she would not be opening the door to a great increase in public expenditure. I have already said that the Isles of Scilly are unique. It is the only non-hill area to be designated as a less favoured area.
By happy chance, my attention was drawn to this matter today by the secretary of the Isles of Scilly branch of the National Farmers Union, Mrs. Penny Rogers, who has written to me about it. I shall be writing to my right hon. Friend the Minister of State. In the meantime, however, I should be most grateful if she would ensure that her officials looked into the matter. I shall be pressing them upon it.

11 pm

Mr. Robert Maclennan: The draft regulations are in principle exceedingly important. During the price-fixing debate that was held earlier this year some hon. Members took the view that the deal that the Government had brought home from Brussels was so bad for British farmers that only the structures package, which was considered to be complementary to the prices package, might help to retrieve the situation. Alas, the Minister has said nothing tonight to comfort those farmers whose incomes were shattered last year, partly by the appalling harvesting conditions and partly by the systematic and deliberate downward pressure that has been exerted on farmers by this Administration.
The Minister's speech will probably read better than it sounded in the House. She took the trouble to explain the provisions of the draft regulations and in some cases gave the Government's view on the principles, but her speech will convey almost nothing to the farming community about what the Government intend British farmers to derive from the package. She said nothing about money, although that is what we wished to hear about. I hope that the Minister will say more about it.
If adequately financed, this series of proposals could achieve some of the objectives that the Commission, the Government and other parties in the House support. They would redirect agricultural production to commodities that are not in surplus, encourage the diversification of land use and help to ease out of agriculture those who wish to leave the industry. These are meritorious objectives. However, when they are set against the Commission's budgetary proposals it appears that very little is likely to be achieved.
The Commission has costed this package at 896 million ecu over a period of five years. To illustrate how little this is, I reckon that there are 45 million hectares of less favoured area land in the Community. All these funds will not be directed towards the less favoured areas, but if, for the sake of argument, that sum of money were to be concentrated on the less favoured areas alone, it would work out at about £13 per hectare over the five-year period. The farmers will not hang out their flags in jubilation if the Community's proposals are implemented. They will be even less enthusiastic about the proposals because there is no price tag from the Government.
The Commission's document that the Government have put before us shows that the package is almost valueless and contains no major commitment by Governments. What the Commission says bears repeating. It says:
it will only be possible to put the measures into practice from 1987 at the earliest,… the new measures will be put into effect only gradually as and when administrative and budgetary measures are taken at national level.
We have heard almost nothing from the Government about what they intend to do in that respect. We cannot regard this as the end of the matter and we shall have to question the Government about the progress of their thinking.

Mr. Ivan Lawrence: We will.

Mr. Maclennan: I am glad that the hon. and learned Member for Burton (Mr. Lawrence) shares my views on these matters. We have a long history of agreeing about many things. I should like to raise a couple of important issues of principle with the Government. Do they intend to offer any new research or advisory back-up money to assist and facilitate some of the transformations that are taking place? Will they look again at the proposals to reduce ADAS funding and to cut experimental husbandry farm schemes and expenditure on the Scottish colleges of agriculture?
It is nonsense on the one hand to produce a package for far-reaching structural change and on the other to cut the advice about how to make it work effectively. The hon. Member for East Lothian (Mr. Home Robertson) spoke about the most recent announcements of Government cuts in this field, but it is never too late to ask the Government to think again. If they are serious in wanting the kind of adaptations that the Minister spoke about, they ought to reconsider.
I notice that the proposals about hill livestock compensatory allowances call for more flexible headage payments. There is some merit in that proposal and it is one that the alliance put forward at an earlier stage. The Minister did not make it clear how the Government see these variations being made. There is a great deal to be said for local and regional determination of these varying rates, and we would like to see some movement in that direction. Regrettably, such movement is not apparent.
The weakness of the proposals is that there is no direct recognition of the potential importance of these schemes concerning the need to reduce surplus production. The proposals smack too much of tokenism. They are all worthy objectives, but the pre-pension scheme is probably set too low to offer any real inducement. As the Minister said, it is likely that, because the farm can be taken up by a close relative, people will not be taken out of agricultural production. In itself, it is a meritorious scheme and will help to provide a sensible career structure for farmers, but it does not have much to do with the central core of thinking about the agricultural problems of the Community.
Above all, this package does not recognise that the problem of massive overproduction, especially of cereals, will not be solved by taking a few marginal farmers out of cereal growing. The major problems are created by the extremely efficient, large farms whose owners have been encouraged over the years by an absurd open-ended system of price support hugely to intensify their production. None of the measures will touch these people. They will affect—or or might beneficially affect—those at the margin who are under enormous pressure because of the policy being pursued on price support. It is not a sensible way to contribute to the reduction of production on a large scale.
The Minister looked to the House for suggestions as to what might be done and I have mentioned a few points in that respect. However, a Minister in opening a debate of this kind has a duty to tell the House and the industry what the Government have in mind and not simply to come along with an open mind and describe the regulations in a generalised way, and say nothing about the money that the Government propose to put into the proposals to make them work.
I believe that the regulations represent a token of good intentions put forward by the Commission under considerable financial pressure because the budget on the Community's agricultural fund is so heavily canted towards the price regime and therefore inadequately directed towards the structural side. Although this is a step forward in that context, no one in the farming industry will believe that it will mark the difference between bankruptcy and profitability within the foreseeable future.
The impact of the proposals on farmers in this country as opposed to their impact on farmers in other countries, appears to raise the possibility that there might be discrimination here arising from the proposal to place ceilings on the payments per farm in the less-favoured areas. I hope that the Minister and those who negotiate in Brussels will pay close attention to that possibility.
In conclusion, I must state that I do not agree with the hon. Member for Pontypridd (Mr. John), who said that the structural measures of the European Community should be repatriated. We pay a lot into the Community budget in support of farming and we ought to get a lot out of it. We do not get as much out of it as we might and that


is largely due to the misdirection into open-ended price support. If we tried to match consumer needs to output and supported that amount of commodities which the Community needed, there would be a substantial amount of Community money available for suitable structural schemes. However, it would never be right that the full burden of that should be borne by Brussels. The proposed proportions in the package are probably about right. However, they are far too low and we look to the Government to say at least something tonight about the order of magnitude of the amount of money that they propose to make available under these schemes over the proposed five-year period.

Mrs. Fenner: Many matters have been raised and I hope that I shall be able to cover them all. The hon. Member for East Lothian (Mr. Home Robertson) raised a number of general points and I take issue with him over his remarks about penalising the consumer. We are doing all that we can—this we have done over many years— to curb surpluses in the CAP. I do not take kindly from the hon. Gentleman his comments about the consumer being penalised when I recall that food prices rose by 25·6 per cent. a year when the previous Labour Government were in power. The House will know that food prices have risen by 3·1 per cent. this year. This Government know a good deal about protecting the consumer.
The hon. Member asked about young farmers and wanted to know how the Government defined "less intensive production". As I explained in my earlier remarks, we see difficulties in administering and enforcing the proposed measures. We shall be probing the proposals in our discussions in Brussels on the package. The hon. Gentleman talked about the damaging effects of overstocking, about which the Royal Society for the Protection of Birds is concerned. We are aware of concerns about overstocking, but it is not a general problem in the United Kingdom. There are isolated examples, but United Kingdom rules provide safeguards against overstocking. We are always willing to consider new ideas on improving the rules. We shall consider extremely carefully the scope offered by the new package.
The hon. Member suggested that we should pay by area rather than by headage rates. EC rules do not allow for hectarage payments on livestock and the package does not amend that. The hon. Gentleman commented on our set-aside scheme. We are considering ideas for a voluntary set-aside scheme for cereals, which could apply Communitywide. The scheme concentrates on cereals because that is where the greatest problem lies. The Commission estimates that by 1991 grain stocks in the Community could reach 80 million tonnes if nothing is done. They now stand at 15 million tonnes.
The hon. Member asked specifically about the pre-pension scheme and landlord's consent. There is no specific requirement for a tenant to obtain his landlord's consent. The pre-pension scheme is voluntary, and if a tenant chooses to take advantage of it he must comply with the terms of his tenancy agreement. Normally that contains provisions on good husbandry, which could well preclude the abandonment of agriculture without the landlord's consent. We are well aware of the implications

of the pre-pension scheme for relations between landlords and tenants. We shall want to ensure that the Commission's proposals are fair to both parties.
The hon. Member commented on the non-implementation of article 20 of the existing structures regulation on forestry. As I said earlier, the article was not implemented because our forestry grant and broadleaf woodland grant schemes are more attractive. The implementation of the article in the United Kingdom can be reconsidered in the light of the proposed amendments that are contained in the package, which are designed to make the article more attractive. That is something that can be reconsidered.
My hon. Friend the Member for St. Ives (Mr. Harris) asked, among other things, about the pre-pension scheme. We have already expressed our reservations about the pre-pension scheme proposals as we are not convinced that they will be cost-effective in reducing the surplus production. The hon. Member for Caithness and Sutherland (Mr. Maclennan) said a number of times that the Government should say exactly what we shall do, but this is an opportunity for the House to debate the issues. When we go to Brussels we shall be able to discuss the scheme and draw attention to the matters about which individual Members are concerned. As I have said, there are matters about which we, the Government, are concerned. In some instances we feel that the proposals are ambiguous or are not likely to work and will not, therefore, be cost-effective.
The hon. Member for Caithness and Sutherland said that the package will be ineffective in reducing surplus production. We tend to agree with him. That is why we are considering ideas for cereal set-aside, which we believe are designed to tackle the roots of the over-production problem.
The hon. Member for East Lothian mentioned environmentally sensitive areas. We are not very satisfied with the proposals that have been put forward, as they lack the flexibility that we would wish. For instance, they have specific conditions attached to them which we would not have found helpful in the work that we have done in connection with the Norfolk Broads. We want to see a slightly more flexible arrangement for ESAs.

Mr. Home Robertson: We are not terribly satisfied with the level of funding or the scope of the environmentally sensitive areas scheme. I should be grateful to the Minister if she would say whether the additional £1·5 million that will become available for ESAs in Britain as a result of the additional grant will be treated as extra money which could extend the scope of the scheme in the first year, or whether the money will simply be swallowed up.

Mrs. Fenner: The present schemes that are already listed for this year and which form part of the proposals in the Agriculture Bill will continue. The others will be additional. The ESAs that are being introduced are funded nationally under an article already provided.

Mr. Home Robertson: Is the amount of £ 1·5 million that is to be provided in the first year additional to the £6 million that is already budgeted?

Mrs. Fenner: Until the EC legislation is amended, the existing text of the article permitting ESAs is the law. It is under that article that the present ESAs are conducted.
This is a complicated package. We have deep reservations about many parts of it. There are many parts


to which we give a cautious welcome. I hope that hon. Members will feel that they have had an opportunity tonight to discuss the matter before it is settled in Brussels.

Mr. Harris: Can my hon. Friend say that the points I raised about the isles of Scilly will be considered by her Department?

Mrs. Fenner: Yes, indeed. The point that farmers other than livestock farmers could be in receipt of hill livestock compensatory allowance is raised by the new proposals. It is a matter that we shall consider.

Question put and agreed to.

Resolved,
That this House takes note of European Community Documents Nos. 6466/86, draft Regulation amending Regulations 797/85, 270/79, 1360/78 and 355/77 on agricultural structures in order to adjust agriculture to the new market situation and maintain rural areas and draft Decision amending Decision 83/641 on joint research programmes and programmes for co-ordinating agricultural research, and 7126/86, draft Regulation amending Regulations 797/85, 355/77 and 1360/78 on agricultural structures to take account of the accession of Spain; and supports the Government's view that these measures should have as a primary aim the closer alignment of agricultural production to the requirements of the market and that the measures must be both cost-effective and containable within existing expenditure ceilings.

Immigration Appeals

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Maude.]

Mr. David Clelland: Tonight I raise a matter that concerns justice, fairness and equality of treatment under the law. The subject affects an often already disadvantaged minority — those who have applied to come to our country to live and who want to be a part of our community. At a time when the world is concerned about the inhumanity and injustice of apartheid in South Africa, and when our Prime Minister has appealed for a measure of equality in that troubled country—even though she refuses to back up her words with deeds—I draw attention to a glaring anomaly in our own system. It is an anomaly that the Government have the power to correct. I hope that the Minister of State, Home Office—the hon. and learned Member for Ribble Valley (Mr. Waddington)— will tell us that he will give sympathetic consideration to it.
To illustrate the nature of the problem, I shall tell the House a story about a little boy — a nine-year-old youngster alone in Bangladesh. It is also a story about injustice and the increasing inaccessibility of a fair hearing to an ever-growing number of ordinary men and women. If my experience is any indication of the problem, there can be very few hon. Members who have not had, at some point, a request from a constituent for help in an immigration case. I have already dealt with quite a number of cases in what is a relatively short time representing the people of Tyne Bridge.
The small boy in this case, Bablus Muskad, is the son of Abdul Muskad, a British resident since 1957, and Mala Bibi Muskad, Abdul's first wife. Bablus, like Abdul's other children, was born in Bangladesh, where his father went for long periods, whilst retaining his British citizenship. Mr. Muskad applied in 1979 for his second wife, Gulnahar Bibi Muskad, and her two children, to join him in England. Bablus was not included in that application, because his mother was still alive. Sadly, by the time the application came through, Mala Bibi had died. Naturally, Gulnahar looked after little Bablus who was only three and a half at the time, with her other children after Mala Bibi's death.
The family arrived in England in 1983 and immediately applied for Bablus to join them. His first interview with the authorities was, of course, in Bangladesh. He was asked many questions about his relationship with Gulnahar and her two sons, Bablus's stepbrothers. The eight-year-old, like eight-year-olds the world over, was confused and imprecise about these relationships. He called Gulnahar his mother and said that his stepbrother was his brother. They were understandable mistakes, given that Gulnahar had looked after Bablus since he could speak.
Many people might find it incredible that those mistakes by an eight-year-old were enough to make the interviewing authorities reject his application to join his father and the stepmother who had cared for him for so long. Bablus was left with a loose network of aunts and uncles, some of whom he did not know, to look after him.
Of course, Mr. Muskad lost no time in appealing against the decision. He was lucky enough to be advised by the family services unit in Newcastle, but it soon found that to take the appeal to tribunal meant that he, together


with any other members of his family who were going to give evidence, would have have to travel to Leeds, where the newly centralised immigration appeals office for the whole of the north of England is based.
The catch about this system of appeal is that each appellant has to pay his own costs. There is no provision in this tribunal, as there is in industrial tribunals and employment tribunals, for appellants to reclaim travel costs or other expenses. In this case, Mr. Muskad first had to go down to Leeds, with one of his sons to act as interpreter, to see the United Kingdom immigration advisory service. He had to go back a second time with Gulnahar and another son for a further visit. Then, since of course the onus is on the appellant to produce as much corroborative evidence as possible, all four members of the family went to Leeds to give evidence to the tribunal.
This particular story has a happy ending—for those hon. Members whose hearts have not been hardened by over exposure to Thatcherism. The Muskad family won their case and Bablus has now been united with his father and stepmother. But that decision took nine return journeys to Leeds at considerable cost to the family and, of course, there are other costs to take into account, such as the travel cost of the family services worker, who helped and advised the Muskad family through the maze of legality.
Even so, Mr. Muskad got off lightly. The adjudicator could have decided, as often happens, that further inquiries should be made in Bangladesh. The hearing would then have been adjourned until a future date when the family would have had to go down to Leeds yet again. If the appeal had been unsuccessful, Mr. Muskad would probably have had to go down to London, again with his family—for the burden of proof rests squarely upon the appellant—but at an even greater cost.
Bablus Muskad's case highlights a glaring failure in the legal appeal system to meet the needs of those men and women who rely on it.
The legal system has recognised that there is a need for appellants to be able to claim some expenses. In social security appeal tribunals, medical appeal tribunals and industrial tribunals the appellant can not only claim travel expenses but loss of earnings—for himself and for the witnesses he calls to support him. Legal aid has recently been extended to include patients appearing before mental health review tribunals. Ironically, had Mr. Muskad been a convicted criminal, appearing before a prison board, he would probably have been able to claim legal aid.
In most other tribunals there is provision for the legitimate expenses of claimants and witnesses whose evidence is material to the case to be met from public funds, although not those of their legal representatives. But there is no provision for this in these immigration appeal cases. It goes without saying that the attendance of witnesses in most immigration appeals is crucial, given that the onus of proof is always on the appellant and that the appellant's case will be that much stronger if corroborated by the evidence of other witnesses.
It is easy to see how the expenses involved in travelling, subsistence and loss of earnings can run into hundreds of pounds. What sort of legal system is it that first weaves a web of complexity around itself and then adds an extra layer of financial cost? A Newcastle solicitor recently wrote to me saying:

there is no doubt that extreme hardship is caused to many claimants, and it is not unfair to conclude that there are certainly a number of cases in our experience where, because of the distance involved in getting to Leeds and the time that that involves — and the expense that our costs and the travel costs involve — some people decide that it is not worth going through with the system. If that is the case, then of course it is a strong indictment of the system, because there is no point at all in having a system of judicial review of cases of this nature which is not effectively and realistically accessible to the parties who are expected to use it.
By definition, these are not simple, straightforward cases. They are highly complex and are of the utmost importance to the individuals concerned, as they deal with their liberty to remain here or ability to bring their families to this country.
There is a strong argument in favour of extending legal aid to this increasingly complex area. The absence of aid has far-reaching consequences, for instance for the appellants' representatives who must also travel to Leeds or London with a properly prepared brief.
In April of this year I had some correspondence with the Lord Chancellor about the current study and review of the legal aid scheme. The noble and learned Lord stressed the Government's commitment to an effective legal aid scheme. That being so, it is time they drew immigration appeals into the network of assistance.
The transfer of the immigration appeals office to central offices in Leeds was, I gather, one of the earliest steps towards the centralisation of Government Departments to cut costs. As is often the case, any saving for the Government purse has resulted in ordinary people having to dig deeper into their pockets. While the Home Office is not famed for handing out money, there is a real need for appellants before immigration appeal tribunals to have at least some access to public funds for the repayment of travel expenses.
In April last I asked the Home Secretary
if he will make funds available for the purpose of providing travel expenses for persons involved in immigrant appeal hearings.
The Minister of State, not a man to mince words or to use two words where one will do, replied:
No". — [Official Report, 17 April 1986; Vol. 95, c. 466–7.]
Though that may have been a factual answer, I had hoped for a more considered and comprehensive one. Hence tonight's debate, which gives the hon. and learned Gentleman the opportunity to give a considered and comprehensive answer.
In the light of what I have said and in the interests of fairness and natural justice, I hope that the Minister's answer tonight will be to the effect that the Government intend to extend the payment of expenses to immigration appeal tribunals.

The Minister of State, Home Office (Mr. David Waddington): The hon. Member for Tyne Bridge (Mr. Clelland) has raised an important point, though he rather spoilt his argument by raising some blatantly party political issues, including at one point making a sneering reference to what he called Thatcherism.
The system to which he is drawing attention has been in existence since the immigration appeals system was created, and therefore any criticisms he has of it would have been just as appropriate in the days of the last Labour Government. So it is nonsensical and rather childish of


him to try to turn this into a party political issue. It is, nevertheless, an important issue, and he questions whether legal aid should be available in immigration appeals.
I remind the hon. Gentleman that the Wilson committee, which recommended the setting up of an appeals system, was of the opinion that if the legal aid scheme was extended to tribunals in general, immigration appeals could no doubt be brought within the scope of that extension, but there were no good grounds for giving priority in respect of immigration appeals. I am bound to say that we see no reason to dissent from that view. I shall explain why.
There is no provision in the Immigration Act 1971 for the payment of expenses to people attending hearings before the appellate authorities, but section 23 of the Act provides for a grant to be made to a voluntary organisation that provides advice or assistance to persons having a right of appeal under the Act. Such a grant is made to the United Kingdom immigrants advisory service, which provides a free service advising appellants about their appeals and representing them at appeal hearings. The grant this year is £870,000. We are grateful to UKIAS for undertaking that work.
Most appeals are heard initially before independent adjudicators. Adjudicators sit not only in London but in Manchester, Birmingham and Leeds, to make it easier for appellants and sponsors who live in the north and the midlands to attend hearings. They also sit in Edinburgh, Glasgow, Belfast, Bristol, Cardiff and Southampton. It should therefore be possible for people to attend a hearing centre within reasonable distance of their home. Furthermore, the procedural rules allow for an appeal to be transferred from one adjudicator to another, and that provision can be and has been used to make it easier for an appellant or a witness to attend an appeal hearing. The Immigration Appeal Tribunal, which in the main hears appeals from an adjudicator's decision sits only in London, but the tribunal normally relies on documentary evidence and oral submissions from the appellant's and respondent's representatives, so it is not usually necessary for an appellant or his sponsor to attend the hearing in person.
Rule 27 of the procedure rules provides for the appellate authorities to issue a witness summons, but subject to the caveat that no person shall be required to travel —that is, made to travel against his will—more than 10 miles from his place of residence unless the

necessary expenses of his attendance are paid. If the decision to summons a witness is solely that of the appellate authority because, for instance, it is felt that a particular person's evidence is essential to fair determination of the appeal, the expenses are paid by the appellate authority. If the summons is issued at the request of either party to the appeal, responsibility for payment then falls on that party. If either party feels it necessary to support its case by calling witnesses but without the formality of seeking a witness summons, the payment of expenses is a matter between the party and the witness.
If an appellant or a witness were to suffer considerable financial loss because of a serious mistake by the home Office or the appellate authority in connection with the appeal proceedings, consideration would be given to the provision of an ex gratia payment. But the mistake would have to be a serious one, that is, more than just an inadvertent error. Loss caused by the adjournment of a hearing would not qualify unless the adjournment itself was caused by serious error. That is in line with the practice of the courts where costs of adjournments are included in the overall costs of the parties to the action. Within the immigration appeals system, each party bears its own costs but, as I said at the beginning, a free advisory service and free representation is provided to minimise the costs faced by a person appearing before the appellate authorities. That was not thought unfair by the previous Administration. We do not think it unfair now.
The hon. Gentleman mentioned a particular case. I cannot comment on it because I did not have notice of the fact that he would mention it and I have no notes about the case before me, but it was an illustration of the fact that there is an appellate authority which can review the decisions of entry clearance officers. In that case, an adjudicator reviewed the decision of an entry clearance officer and allowed entry to the person concerned. Therefore, that was an illustration of the system working, not an illustration of it not working. I do not think that I can comment further on the case.
Once again, I am greatful to the hon. Gentleman for allowing me at least to make clear how the system works and how it has worked, under the previous Labour Government and this Government since it was devised.
Question put and agreed to.
Adjourned accordingly at twenty minutes to Twelve o'clock.